Chapter 4 Selecting a Type of Ownership

Business Ownership Spring 2007 Williams

C. Greene, (2000). Entrepreneurship Ideas in Action. Cincinnati, OH: South-Western.

Lesson 4.2 Own a Franchise or Start a Business

There are several ways of going into business and becoming an entrepreneur. You can:

Purchase an existing business Enter a family business Purchase a franchise Start your own business

Franchise Ownership

A franchise is a legal agreement that gives an individual the right to market a companys products or services in a particular area. (pg. 75) The two parties to a franchise agreement are the franchisor, the parent company of a franchise agreement that provides the produce/service, and the franchisee, the distributor of a franchised product/service

Operating Costs of a Franchise

The initial franchise fee is the fee the franchise owner pays in return for the right to run the franchise. Start-up costs are the costs associated with beginning a business. Royalty fees are weekly/monthly payments made by the owner of franchise. Advertising fees are fees paid to support advertising of the franchise as a whole. (pg. 75-76)

Starting Your Own Business

For whatever reason, running an existing business or operating a franchise may not be right for you. This means to be an entrepreneur you will have to establish a business of your own.

Advantages of Starting Your Own Business

Independence Satisfaction Challenge of creating something new Triumph when business is profitable (pg. 79)

Disadvantages of Starting Your Own Business

RISKS Uncertainty of demand for the product/service Need to make decisions daily
(pg. 80)

Lesson 4.3-Choose the Legal Form of Your Business

Once you decide to start your own business, you must decide what type of ownership the business will have. There are three types of ownership arrangements to choose from:

Sole Proprietorship Partnership Corporation

Types of Business Arrangements

A business that is owned exclusively by one person is a sole proprietorship. A business owned by two or more people is a partnership. A business with the legal rights of a person and which may be owned by many people is a corporation. (pg. 82)

Sole Proprietorship

Sole proprietorships enable a person to be in control of all business aspects with little government control. A sole proprietor may find it difficult to raise money and encounter greater loss of private assets. (pg. 82)

Partnership

Advantages:

Shared decision making Losses shared by all partners Little government regulation Partners may not like shared profits DISAGREEMENTS

Disadvantages:

Partnership Agreement: When two or more entrepreneurs go into business together, they generally sign a partnership agreement. This agreement is to set down in writing the rights and responsibilities of each of the owners. (pg. 83)

Corporation

Unlike a sole proprietorship or a partnership, a corporation is treated independently of its owners. Since a corporation has the legal rights of a person, the corporation, not the owners, pays taxes, enters into contracts, and may be held liable for negligence.

Team Activity

Find a business either local, nation-wide, or world wide that represents each of the three business arrangements.