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MGMT 153: Chapters 4 & 5

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Melissa Newman

on 28 September 2015

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Transcript of MGMT 153: Chapters 4 & 5

Entrepreneurship &
Small Business Ownership

Chapters 4 & 5
Chapter 4:
Options for Organizing Business

Forms of Business Ownership
Sole Proprietorship
Sole Proprietorship
Owned by one individual
15-20 million in the U.S.
Nearly 3/4 of all businesses
Most common form
An association of two or more people who carry out business for profit.
Legal entities created by the state whose assets and liabilities are separate from its owners
Have most of the rights of people
Owned by shareholders
Are "incorporated"
Easy & cheap to form
Secrecy & flexibility
Keep all profits
Taxation & gov't
Unlimited liability
Limited funds & skills
Lack of continuity
Easy to organize
More access to $$ (compared to proprietorships)
More knowledge & skills
Regulatory controls
Unlimited liability
Life of partnership
Distribution of profits
Still limited $$ (compared to a corp.)
Limited liability
Transfer of ownership
Perpetual life
External sources of $$
Expansion potential
Double taxation
Forming a corporation
Disclosure of information
Employee-owner separation
Types of Partnerships
General (complete sharing)
Limited (limited sharing)
Successful Partnerships...
have clear Articles of Partnership
are equal among partners
are relationship-based
Types of Corporations
Types of Corporations
Owned by just one or a few people who are closely involved in managing the business.
Corporation whose stock anyone may buy, sell or trade.
Owned and operated by the government (e.g. USPS)
Focuses on providing service rather than earning profit.
Stock Ownership
Preferred Stock
Owners do NOT have a say in running of company but have claim to profits before other stockholders.
Common Stock
Have voting rights but NOT preferential treatment regarding dividends.
Comparing Forms of Business Ownership
Other Types of Business Ownership
Joint Venture
Partnership for specific project or period of time.
Subchapter S Corporation (S-Corp)
Corporation taxed as partnership
Limited Liability Company (LLC)
Limited liability and taxation like a partnership but fewer restrictions.
Limited Liability Partnership (LLP)
Partnership with limited liability
Cooperative (Co-op)
Member owned, member controlled, member benefited
Combination of two companies
(usually corps) to form a new company.
Horizontal Merger: When firms make and sell similar products merge.
Vertical Merger: When firms operating at different but related levels of an industry merge.
Conglomerate Merger: When firms in unrelated industries merge.
The purchase of one company by another, usually in buying its stock and/or assuming its debt.
Corporate Raider - company "raids" another
Poison Pill - Try to avoid a hostile takeover by making stock look less attractive
Shark Repellant - Require large majority of stockholders to approve a takeover
White Knight - Better firm willing to takeover the threatened company
Leveraged Buyout - A group of investors borrows money to acquire a company (or division of one), using the assets of that company to guarantee repayment of the loan.
Trends in Business Ownership
Personal Finance
FICO (Fair Isaac Corporation) is the largest and best known of several companies that provide software for calculating a person's credit score
FICO Scores are calculated from: payment history (35%), amounts owed (30%), length of credit history (15%), types of credit (10%), and new credit (10%)
In the U.S., there are three national credit bureaus (Equifax, Experian and TransUnion). Each uses the FICO algorithm to produce a version of the FICO Score based on the data they collect on each consumer.
Note: data can vary among the different bureaus!
FICO scores can range from 300 to 850
The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.
Chapter 5:

Entrepreneurship vs. Small Biz Ownership
Pretty much the same thing
Terms used interchangeably
The process of creating and managing a business to achieve desired objectives
What IS a "small business"?
Why are small businesses important?
Represent 99.7% of employer firms
Generated 64% of net new jobs over last 15 years
Represent 55% of all innovations
Popular industries for small businesses
Retailing and wholesaling
Selling directly to consumers (sporting goods, dry cleaners, boutiques, restaurants)
Represent 80% of US jobs
Small manufacturers excel at customization
High Technology
40% of high tech jobs are with small businesses
Flexibility & focus
High stress level
High failure (50%)
Can't cope w/growth
Business Plan
Open your business and (hopefully) profit!
Make Decisions
Concept or general idea
Starting a Small Business
Form of ownership
Acquire existing or start new?
New concept or franchise?
Provide your own personal capital
Pursue financing options
Debt Financing
Equity Financing
Debt Financing
Borrowing financial resources typically from a bank or lending institutions. Often, collateral is needed.
Borrowing against personal assets (home equity loan, cash in retirement or savings account, etc.) or bringing your own assets (computer, car, etc.) as part of ownership interest in the business.
Persons or organizations (venture capitalists) who agree to provide business funding in exchange for an ownership interest or stock. Usually requires sharing of ownership and control.
Must be paid back!
Not paid back.
(Instead, share profits)
Starting from scratch vs. buying an existing business
A license to sell another's products or to use another's name in business, or both.
Training support
Brand name appeal
National advertising
Financial assistance
Proven products
Greater chance for success
Fees and profit sharing
Standardized operations
Restrictions on purchasing
Limited product line
Possible market saturation
Less freedom
Franchising Track Records
Lowest Failure Rates
Super 8 - 4%
Days Inn - 6%
Subway - 7%
Dairy Queen - 8%
Dunkin Donuts - 8%
Highest Failure Rates
Matco Tools - 36%
Cold Stone Creamery - 31%
Quizno's - 25%
Curves - 16%
UPS Store - 16%
Demographic shifts
Increase in service exports
Internet usage on the rise
Big businesses acting small
Downsizing ("rightsizing")
Social Entrepreneurship
See you next week!
"Smallness" is relative
Any independently owned and operated business that is:
not dominant in its competitive area
employs less than 500 people
Small Business Defined...
That's why it's "leveraged"
Why does it matter?
You can access yours at
What's your business form?
1. Within your company PACE teams, discuss the pros/cons of
of these business forms for YOUR big idea:
Sole Proprietorship

2. Decide which form you will take and why:
If corporation, determine the following:
Private, public, nonprofit? S corp or C corp?
Incorporated as domestic, alien or foreign?
If partnership, determine type (limited/general)
Full transcript