Chapter 5 Mary Ellen Sheets founder to Two Men and a Truck o Provided a needed service o Gave back to community o Grew to a mega franchise o 1st female entrepreneurship of the year o Her favorite form of business P 116 3 Forms of business Sole Proprietorship o Owned and managed by one person Partnership Corporation o 2 or more owners advantage o Separate liability from owners and employees stockholders P 117 advantages of sole proprietorship o Easy to start a business with a license or permit o You are your own boss o Can bring kids in eventually to take over o Owners get all the profits o Taxed at individual tax rate Disadvantages of Sole Proprietorship Financial resources usually limited No limit to personal liability law suits can lose everything Owner works long hours No benefits No insurance pension Difficult to get a bank loan dealing with theft P 119 Partnerships Figure 5 2 General partnerships o All owners are responsible for company o Disadvantage unlimited liability disagreements among parters Master partnerships o Taxed like a partnership o Act like a corporation in terms of liabilities Limited partnerships o Silent partners who invest but don t do much for company Added resources o Mixture of general and limited partners o Act like corporations o No personal liability involved o Taxed like partnerships Partnership agreement figure 5 2 o Sharing of profits o Things to include in a partnership agreement Advantages o No personal taxes o Share management o Added resources of limited partners Disadvantages o Unlimited liability for debts from anyone in the firm o Disagreements among partners especially when dividing profits Corporations Corporation takes responsibility for debts liabilities Can sell stock to public and protected from losing your home o Have to submit your financial statements to SEC on a quarterly basis Disadvantages o Double and triple taxation at fed level Fed and state taxes on corporate net income sometimes county taxes Dividends paid to stock holders stockholders pay all these o Conflicts between management of corporation and stockholders o Individuals can incorporate o Looks like a corporation sells stocks but taxed at an individual o Can t have more than 100 stock holders S Corporations rate Figure 5 5 p 127 P 128 LLC Limited Liability Corporation o Person assets are protected o Chose tax basis o Decide how to spread out profits and losses o Self employment taxes P130 chart Different types of partnerships and corporations Risk of losses taxes management responsibilities 2 types of mergers and acquisitions P131 Mergers 2 companies join to form one company Acquisitions one company buys another Objective reducing overhead someone needs to go o Form a company that is producing a product efficiently with less overhead Leverage buyouts Inversions Insiders want to prevent an acquisition Insiders price stock so high that its no longer attractive o Insiders borrow money to buy out the stock then reprice it Then original company can make enough money to buy out the loans Buy a related company in another place and move headquarters there because of lower corporate tax rates Like outsourcing your headquarters to a corporate friendly location Moving your corporate headquarters to a location with a lower corporate tax rate Franchises p 133 An agreement where the franchisor sells the rights to use the business s name to a franchisee Get support from corporate management Get standardized products Advantages o Get management assistance o Location o Can still personally own business Disadvantages o Monthly fee based on revenue o Startup costs buy building initial franchise fee monthly loyalty o Franchisee is taxed P 136 figure 5 8 P 137 P 138 139 Things to consider for buying a franchise If potential franchisees can meet or exceed customer demand go ahead Homebased businesses no transportation little startup costs E commerce Technology in Franchising Social media Franchising in Global Markets Make it easier for customer wherever they are to buy your product Important that you can extract your profits if you are selling in a different country o Some govts Try to block you Can be challenging P 140 Cooperatives Group of people get together customers own business and set rates Pay less taxes than corporations
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