1. Chapter 5
Forms of Business Ownership
and Organization
2. Learning Goals
1 Distinguish between small and large
businesses. 7 Outline the three main legal forms of
business ownership and summarize
Discuss the contributions of small the features of businesses owned by
2
businesses to the economy. employees and families, as well as
not-for-profit organizations.
3 Discuss the survival rate of small
businesses. 8 Describe public and collective
(cooperative) business ownership.
4 Describe the features of an effective
9 Identify types of corporations and
business plan.
the levels of corporate management.
5 Describe funding opportunities for small 10 Describe mergers, acquisitions, and
businesses, including the role of the
Small Business Administration. joint ventures.
6
Explain how franchising can provide
opportunities for both franchisors and
franchisees.
3. Most Businesses are Small Businesses
s 90% of firms with employees have fewer than 20
people on staff.
s 98% have fewer than 100 employees
s More than 20 million people in the United States
earn business income without employees.
s Almost ½ the sales in the United States are made by
small businesses.
s Small businesses generated 60%--80% of new jobs
over the last decade.
s Small businesses are a launching pad for
entrepreneurs and encourage the prevalence of
minorities.
4. W is Small Business?
hat
s The Small Business Administration defines a small
business to be a firm that is independently owned and
operated and is not dominant in the field.
s Manufacturing business: fewer than 500 workers
s Wholesalers: fewer than 100 workers
s Retailers: less than $6 million in annual sales
s Agricultural business: less than $750,000
s Small businesses’ sizes range from $500,000 to $25
million in sales and from 100 to 1,500 employees.
7. Home-Based Businesses
s 52% of small businesses
s 16 million
s Allows for more control of business
s Allows for more control of personal time
s Keeps start-up and operating expenses low
s Owner can feel isolated and business has less
visibility to customers
8. Contributions of Small Business
s Create New Jobs
s Account for 30% of U.S. Exports
s Offer Customized Services
s Create New Industries
s Encourage Innovation
9. Small Business Failure
s 3 in 10 businesses
close permanently
within two years.
s 50% of businesses
fail within five years.
s By the 10-year mark,
82% of all small
businesses have
closed permanently.
10. Reasons W Small Business Fail
hy
s Management Shortcomings
s Inadequate Financing
s Government Regulation
11. Increasing the Likelihood of Small
Business Success
s Creating a Business Plan
s Written documentation that provides orderly
statement of goals, methods, and purpose
s Discusses the company’s mission and vision
s Analyzes unique advantage, customers, and
competition
13. Small Business Administration
s Government agency concerned with
helping small business firms
s Financial Assistance
s Loan Guarantees
s Microloans
s Small Business Investment Companies
(SBICs)
s Active Capital: SBA Loans
14. Other Specialized Assistance
s Set-Aside Programs
s Government Contracts (over 23%)
s 5% for women and minorities
s Assistance in Financing Government Procurement
s Business Incubators
s Local community initiatives to share resources for
small start-ups
s SCORE: Counselors to America’s Small Busines
s Small Business Development Centers
(SBDC)
15. Opportunities for Women & Minorities
s More than 40% of U.S. businesses are owned
by women (10 million businesses)
s The number of businesses owned by
minorities outpaced the growth in the number
of U.S. businesses overall.
s Women and minorities still face challenges:
s Smaller-scale operations
s Challenges finding investors
s Access to capital
17. The Franchising Alternative
s A contractual business agreement between a
manufacturer or another supplier and a dealer
to produce and market the supplier’s good or
service.
s Links to franchising opportunities:
s Subway
s Entrepreneur
18. The Franchising Agreement
s Franchising agreements
exist between franchisee
and franchisor.
s 50% of all retail sales
s 760,000 businesses
s 18 million jobs
s $500 billion in payroll
s Near $2 trillion in sales
s New franchise opens
every 8 minutes
s Franchising overseas is a
growing trend
19. Benefits and Problems of Franchising
ADVANTAGES DISADVANTAGES
s Prior Performance s Franchise Fees
Record s Future Payments
s Recognizable Company (Royalties)
Name (Brand) s Linked to Reputation
s Proven Business Model and Management
s Tested Management s Franchise Agreement
Program Restrictions
s Savings through Volume s Tight Control
Purchases
22. Legal Structures to Meet Changing
Needs
s Financial Situation
s Management Skills and Limitations
s Management Styles and Capabilities
s Exposure to Liability
23. Types of Corporations
s Domestic, foreign,
alien
s S Corporation
s Limited Liability
Companies
s Employee-Owned
Corporations
s Not-for-Profit
Corporations
24. Public and Collective Ownership
s Public ownership – a unit or agency of
government owns and operates an
organization. Parking structures, water
systems, turnpike authority.
s Customer-Owned Businesses –
collective ownership of a production,
storage, transportation or marketing
organization is a cooperative.
25. Corporate Management
s Stockholders – acquire stocks
in exchange for ownership
s Preferred Stock
s Common Stock
s Board of Directors – elected by
stockholders to oversee
corporation
s Corporate Officers &
Management – make major
corporate decisions and handle
ongoing operations
26. W Businesses Join Forces
hen
s Mergers and Acquisitions (M&A)
s Merger – combination of two or more firms to form one
company
s Vertical
s Horizontal
s Conglomerate
s Acquisition – procedure in which one firm purchases the
property and assumes the obligations of another
s Joint Venture – partnership between companies
for a specific purpose
