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									Types of Business
       Ownership
Which type is Best for Your Venture?




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Forms of Business
Ownership

One of the first decisions that
  you will have to make as a
  business owner is how the
company should be structured


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Consider These Criteria
   The vision of ownership regarding the
    size and nature of the business
   The level of control owners wish to
    have
   The level of "structure“ owners are
    willing to deal with
   The business's vulnerability to
    lawsuits.
                                            3
Consider These Criteria
   Tax implications of the different
    ownership structures
   Expected profit (or loss) of the
    business
   Whether or not owners need to re-
    invest earnings into the business
   Your need for access to cash out of the
    business for yourself

                                              4
What Are The Choices?
A legally constructed business may
take one of the following forms:
           Sole Proprietorship

              Partnership

              Corporation
              Cooperative
               Franchise

                                     5
Sole Proprietorships
   The vast majority of small business
    start out as sole proprietorships

   These firms are owned by one person

   Usually the individual looks after the
    day-to-day running the business.


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Sole Proprietorships
   Sole proprietors own all the assets of
    the business and the profits
    generated by it
   They also assume complete
    responsibility for any of its liabilities
    or debts
   In the eyes of the law and the public,
    you are one in the same with the
    business

                                                7
Sole Proprietorships
    ADVANTAGES                      DISADVANTAGES
quick, easy, and inexpensive to   limited in terms of employee
establish                          compensation plans

only requires registration and    all business income is taxable
appropriate licenses

owner makes all decisions         profits may be taxed at a
                                   higher rate than for an
                                   incorporated organization
owner includes all business       harder to raise capital than for
profits/losses with personal       a partnership or a corporation
income
                                                                       8
Partnerships
 In a Partnership, two or more people
  share ownership of a single business.
 Like proprietorships, the law does not
  distinguish between the business and
  its owners.
 All partners may or may not be
  actively involved in the day-to-day
  operation of the venture.


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Partnerships
   Each partner contributes something
    toward the partnership:

          Startup money
          Material resources
          Talent
          Specialized skill
          Experience
          Specific knowledge
          Business contacts.

                                         10
Partnership Agreements
   Partners should create a legal
    partnership agreement that outlines:
     The time and capital each will contribute
     How decisions will be made
     How profits will be shared (percentage)
     How disputes will be resolved
     How future partners will be admitted to
      the partnership
     How partners can be bought out
     Terminating the partnership

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Types of Partnerships
General Partnership
   Partners divide responsibility for
    management and liability, as well as
    the shares of profit or loss according
    to their internal agreement.
   Equal shares are assumed unless
    there is a written agreement that
    states differently.

                                             12
Types of Partnerships
Limited Partnership
   Most of the partners have limited
    liability based on the extent of their
    investment
   Limited input regarding management
    decisions
   Most partners are investors for short
    term projects, or for investing in
    capital assets

                                             13
Types of Partnerships

Limited Partnership
   This form of ownership is not often
    used for operating retail or service
    businesses
   Forming a limited partnership is more
    complex and formal than that of a
    general partnership

                                            14
Types of Partnerships

Joint Venture
   Acts like a general partnership, but is
    clearly for a limited period of time or
    a single project
   If the partners in a joint venture
    repeat the activity, they will be
    recognized as an ongoing partnership

                                              15
Types of Partnerships

Silent Partnership
   One or more visible people
   A person might invest money in the
    partnership but do not take an active
    part in the management of it




                                            16
Partnerships
    ADVANTAGES                            DISADVANTAGES
quick, easy, and inexpensive to         general partners assume unlimited
establish                                liability for all debts/obligations
                                         incurred by the partnership
each partner may deduct business        both business and personal income are
losses (in proportion to the amount      taxed
invested in the business) from
whatever is earned within the business
favourable tax treatment, especially    profits may be taxed at a higher rate
for startup losses                       than for an incorporated organization
combines the talents and resources      unless otherwise stated in a
of two or more people                    partnership agreement, the partnership
                                         is automatically dissolved when one of
                                         the partners dies
                                         if the partners can’t agree on the
                                         day-to-day operation of the
                                         partnership, decisions become difficult
                                         to make
                                                                                   17
Corporations
   A corporation is constituted by law
    and is considered to be a distinct
    legal entity from its shareholders
   This means it is separated and apart
    from those who own it
   A shareholder’s liability for the
    corporations debts are limited to his
    or her investment



                                            18
Corporations
 The  goal of a corporation is to
  operate a business for profit
  and to distribute the profits
  among the shareholders
 A corporation can be taxed; it
  can be sued; it can enter into
  contractual agreements
 The owners of a corporation are
  its shareholders
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Corporations
 The  shareholders elect a
  board of directors to oversee
  the major policies and
  decisions of the corporation
 The corporation has a life of
  its own and does not dissolve
  when ownership changes

                              20
Corporations
    ADVANTAGES                     DISADVANTAGES
corporations have an unlimited    more costly to set up because of
life, so day-to-day business       government fees, name searches,
continues despite the illness or   legal fees
death of their owners
ownership is easily transferred   requires more formal annual
                                   activities (annual meeting,
                                   minutes, report)
profits can be removed from the   losses cannot be used by the
corporation in the form of         owner to offset personal income
dividends, which can be a tax
benefit to the owner
the corporation can arrange for   owner’s personal assets can still
employee benefits such as group    be seized by the lending agency if
insurance or registered pension    he or she has put up personal
plans                              collateral for a business loan       21
Franchises
A  firm expands into new
  markets by selling the rights
  to use the company's name
  and products to individuals
 Franchising company
  provides training services
  and an advertising campaign
  for the purchaser of the
  franchise

                                  22
Franchises
 Purchaser agrees to meet
 certain quality standards,
 provide certain products, and
 pay a franchise fee to the
 franchising organization




                             23
Franchises
   ADVANTAGES                 DISADVANTAGES
Smaller than usual capital   Possible high franchiser
investment                    fee

Prior public acceptance of   Some loss of
product                       independence
Better than average          Possible difficulties in
profit margins                canceling contract

Management assistance
Cooperatives
   A business that is owned by an association
    of members.

   This is the least common form of business

   Can be appropriate in situations where a
    group of persons or businesses decide to
    pool their resources to provide access to
    common needs, such as the delivery of
    products or services, the sale of products or
    services, employment, and more.
Cooperatives
    ADVANTAGES              DISADVANTAGES
• Owned and controlled by   • Possible conflict between
  members                     members

• Democratic control (one   • Longer decision-making
  member, one vote)           process
• Limited liability         • Participation of members
                              needed for success
• Profit distribution       • Extensive record keeping
                            • Less incentive to invest
                              additional capital

								
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