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Chapter 6 - Forms of Small Business Ownership

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Matt Lisa

on 14 September 2010

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Transcript of Chapter 6 - Forms of Small Business Ownership

Forms of Small Business Ownership the legal structure of a business that determines:
how the business is managed
how the business is taxed
financial liability of owners
the amount of capital required to manage the business
Legal Structure Sole Proprietorship Partnership
Corporation Advantages Fiancial (All the Profits are Mine!! Bhawhahahaha!!)
Lack of Restrictions (I do what I want!!)
Secrecy (I don't need to tell you what I do!!)
Personal Satisfaction (I'm King of the World!!) Disadvantages Unlimited Liability (I can lose all my $$!!)
Limited Size (Can I borrow some $$??)
Limited Life (When you kick it, so does the company) Partnerships association of two or more persons to carry on as co-owners of a business, for profit Types of Partnershps General (all in)
Limited (you can lose your investment, but you will not lose your house)
Silent (sugar mamma)
Dormant (not known by the public and not active in managment)
Nominal (Trump Towers)
Limited Liability Partnership (LLP) (best of both worlds, tax benefits and limited liability) Advantages Increase sources of capital and credit (more sources of money)
Improved decision making potential (two head are better than one)
Improved chances of expansion and growth (increased capital and credit)
Definite legal status (well know legal structure) Disadvantages unlimited liability (you can still lose your house!!)
problem of continuity (if you lose a partner, whats next??)
Managerial Problems (too many cooks spoil the broth)
Size Limitations (access to capital is limited by the partners involved) Corporation a business form that allows an unlimited life while providing limited liability for stockholders must get permission from the state to create a corporation
Delaware, Maryland, and New Jersey are popular states to incorporate
a corporate charter must be created (type of business, number of shares, etc.)
stockholders own the firm and may elect a board of directors
board of directors choose a president or CEO Advantages Disadvantages Limited Liability (you can only lose your stock)
Indefinite Life (President dies or leaves, BOD hires another)
Growth Potential (sell more shares to increase capital)
Managerial Efficiency (owners do not manage, they hire the best)
Transfer of Ownership (sell your stock if you no longer want ownership) Heavy Taxation (double taxation)
High Organizing Expenses (charter fees, attorney fees, etc.)
Government Restrictions (federal and state reporting, many additional laws
Lack of Secrecy (publicly posted financial data) Corporation a method of avoiding double taxation
limited number of shareholders
limited amount of non-core revenue
could give a large tax bill to individual shareholder Other Forms of Business Limited Liability Companies (LLC) - limited liability of a corporation
witht the tax advantages of a partnership
taxes are not paid as an entity but rather passed through to the company owners
liability is limited to the amount of owners` investment
LLC statues differ from state to state, making cross state operations difficult Joint Venture - short-term parnership in which two firms form a legally recognized alliance
3D joint venture of Sony Corporation, Discovery Communications and IMAX Corporation -- one of the first 24-hour, fully programmed 3D television channels.
Beverage Start-up Gets A Big Boost From Anheuser-Busch: Soho Natural Soda, a startup producer of natural carbonated beverages, was operating out of a Brooklyn kitchen. With no money to build, rent or operate any bottling facilities, it persuaded a regional beer company to use its excess capacity to bottle the beverages. Soho then got brewer Anheuser-Busch to distribute the product. In 11 years it grew from a kitchen table to $11 million in sales, with little overhead or cost. Cooperatives - a business owned and controlled by the people who use its services and its purpose
is to provide benefits to its members.
use owned, members buy stock or pay a membership fee having part of their profits withheld by the cooperative or paying per-unit assessments on products sold or purchased.
cooperative are democratic organizations, members vote to elect a board of directors or decide on major issues
user benefits-sole purpose is to provide benefits to its members Challenges:
difficult to recruit members that share a common vision
difficult to keep everyone in line, coop members may see a better opportunity to leave coop
Non-Profits-an entity organized for purposes other than making a profit in which
none of the organization's income is distributed to its members, directors, or
Professional Associations
Political Organizations
Volunteer groups
Schools defining how you are going to run your business from the beginning Applying this Chapter Miki and Charence want to start a business teaching fitness classes, but it will
require taking out a large loan and they are worried about losing their cars and
other personal possessions if it fails. Is this a reasonable fear if they operate a
partnership? If yes, suggest an alternative business form and explain why it will
ease their concerns? Anson and Shea started a photography studio organized as a partnership.
Their lawyer, Kaya, advised them that the businesses products and its legal
form exposes them to signficant liability. Anson and Shea insist that they
do not want to form a corporation. What business form is the lawyer likely
to suggest? Why? a business that is owned and controlled by only one person
Full transcript