Entrepreneurial management

Select a Type
OF OWNERSHIP CHAPTER 7

Group 6
 table of
CONTENT
7.1 Decide to Purchase, Join, or Start a
Business

7.2 Choose a Legal Form of Business

7.3 Legal Issues and Business Ownership

Page 03 of 15
 7.1
DECIDE TO PURCHASE, JOIN,
OR START A BUSINESS
 PURCHASE AN EXISTING BUSINESS
REASONS WHY OWNERS SELL THEIR WAYS TO FIND BUSINESSES THAT ARE FOR
BUSINESSES SALE
Insufficient sales or profits Find advertisements in the classified
New competition, fear of changing section of the local newspaper.
economic conditions, retirement Decide to use a business broker who
Dispute among partners sells businesses.
Death or illness of a partner Other people in your industry might
Owner’s desire to do something know of businesses for sale.
different. Learn about available businesses
through landlords and leasing agents,
lawyers and bankers, management
consultants, the Small Business
Administration, the Chamber of
Commerce, and bankruptcy
announcements.
 ADVANTAGES OF BUYING AN EXISTING BUSINESS
1. The existing business already has the necessary equipment, suppliers, and
procedures in place.
2. The seller of a business may train a new owner.
3. There are prior records of revenues, expenses, and profits.
4. Financial arrangements can be easier.

DISADVANTAGES OF BUYING AN EXISTING BUSINESS

1. Many businesses are for sale because they are not making a profit.
2. Serious problems may be inherited.
3. Capital is required.
 STEPS IN PURCHASING A BUSINESS
1. Write specific objectives about the kind of business you want to
buy, and identify businesses for sale that meet your objectives.
2. Meet with business sellers or brokers to investigate specific
opportunities.
3. Visit during business hours to observe the business in action.
4. Ask the owner to provide you with a complete financial accounting of
operations for at least the past three years.3. Visit during business hours to
observe the business in action.
5. Ask for important information in written form.
6. Determine how you would finance the business.
7. Get expert help to determine a price to offer for the business.
 FRANCHISE OWNERSHIP

A franchise is a legal agreement that gives an individual the right to

market a company’s products or services in a particular area.

Franchisee is the person who purchases a franchise agreement.

Franchisor is the person or company that offers a franchise for

purchase.
 OPERATING COSTS OF A FRANCHISE

amount the local franchise owner pays in

INITIAL FRANCHISE FEE
return for the right to run the franchise.

STARTUP COSTS costs associated with beginning a business.

weekly or monthly payments made by the local owner

ROYALTY FEES
to the franchise company.

paid to the franchise company to support television,

ADVERTISING FEES magazine, or other advertising of the franchise as a
whole.
 INVESTIGATE THE FRANCHISE OPPORTUNITY
The Federal Trade Commission’s (FTC) Franchise and Business
Opportunity Rule requires franchise and business opportunity sellers to give you
specific information to help you make an informed decision about your
purchase.

The disclosure document should include the following:

Names, addresses, and telephone numbers of at least ten previous
purchasers who live nearest to you
The fully audited financial statements of the seller
Background and experience of the business’s key executives
Cost of starting and maintaining the business
The responsibilities you and the seller will have once you have invested in the
opportunity
 EVALUATE A FRANCHISE
1. Study the disclosure document and proposed contract carefully.
2. Interview current owners listed in the disclosure document
carefully.
3. Investigate the franchisor’s history and profitability.
4. Investigate claims about your potential earnings.
5. Obtain from sellers in writing the number and percentage of owners who have
done as well as they claim you will.
6. Listen carefully to sales presentations.
7. Shop around.
8. Get the seller’s promises in writing.
9. Determine what will happen if you want to cancel the franchise agreement.
10. Remember that it is okay to ask for advice from professionals.
 ADVANTAGES OF OWNING A FRANCHISE
1. An entrepreneur is provided with an established product or service.
2. Franchisors offer management, technical, and other assistance.
3. Equipment and supplies can be less expensive.
4. A guarantee of consistency attracts customers.

DISADVANTAGES OF OWNING A FRANCHISE

1. Franchise fees can be costly and cut down on profits.
2. Owners of franchises have less freedom to make decisions than other
entrepreneurs.
3. Franchisees are dependent on the performance of other franchisees in the
chain.
4. The franchisor can terminate the franchise agreement.
 ENTER A FAMILY BUSINESS

The U.S. economy is dominated by family businesses.

According to some estimates, as many as 90 percent of all
businesses, including the vast majority of small- and
medium-sized companies, are owned by families.
 ADVANTAGES OF A FAMILY BUSINESS
Entrepreneurs who work for their family businesses enjoy the pride and sense of
mission that comes with being part of a family enterprise
They also enjoy the fact that their businesses remain in the family for at least
one more generation.
Some enjoy working with relatives and knowing that their efforts are benefiting
others whom they care about.

DISADVANTAGES OF A FAMILY BUSINESS

Family members, regardless of their ability, often hold senior management
positions.
People who work for their families cannot make all decisions themselves.
Another challenge for a family-owned business is what to do when there is
no family member to take over the business.
 STARTING YOUR OWN BUSINESS

ADVANTAGES OF BUYING AN EXISTING BUSINESS

Entrepreneurs who start their own business get to make decisions
about everything from where to locate the business to how many employees to
hire to what prices to charge.

DISADVANTAGES OF BUYING AN EXISTING BUSINESS

There is no certainty that customers will purchase what you offer.
Entrepreneurs who start their own business must also make decisions that
other types of entrepreneurs need not make.
 7.2
CHOOSE A LEGAL
FORM OF BUSINESS
 FORM OF BUSINESS
A business that is owned exclusively by one person. It
SOLE
enable one person to be in control of all business
PROPRIETORSHIP
aspects.

PARTNERSHIP A business owned by two or more people

a business that has the legal rights of a person but

CORPORATION
is independent of its owners.
 SOLE PROPRIETORSHIP

ADVANTAGES OF A SOLE PROPRIETORSHIP

The government exercises very little control over sole proprietorships,
so such businesses can be established and run very simply.

DISADVANTAGES OF A SOLE PROPRIETORSHIP

It can be difficult to raise money for a sole proprietorship. You are the only person
investing money. You also bear the burden of all of the risks.
 PARTNERSHIP
ADVANTAGES OF PARTNERSHIP
Running a business as a partnership means that you will not have to
come up with all of the capital alone. It also means that any losses the business
incurs will be shared by all of the partners.

DISADVANTAGES OF PARTNERSHIP
Some entrepreneurs do not like partnerships because they do not
want to share responsibilities and profits with other people. Partnerships
can also lead to disagreements and can end bitterly.

PARTNERSHIP AGREEMENT
The purpose of the partnership agreement is to set down in writing the rights and
responsibilities of each of the owners.
 CORPORATION
Share of stock - a unit of ownership in a corporation.

Board of directors - a group of people who meet several times a year

to make important decisions affecting the company.

Dividends - distributions of corporate profits to the shareholders.

 CORPORATION

ADVANTAGES OF CORPORATION
The shareholders’ risk is limited to the amount of money each shareholder invested
in the company when he or she purchased stock.

DISADVANTAGES OF CORPORATION
Setting up a corporation is more complicated than setting up a sole proprietorship
or a partnership.
Corporations are subject to much more government regulation than are sole
proprietorships or partnerships.
Another drawback ofincorporation is that income is taxed twice.
 CORPORATION

S CORPORATION
An S corporation is a corporation organized under Subchapter S of the
Internal Revenue Code. Unlike regular corporations, an S corporation is not taxed as
a business. The individual shareholders are taxed on the profits they earn, as they
would be in a partnership.

LIMITED LIABILITY COMPANY

A limited liability company (LLC) is a legal form of business that
offers the limited liability protection of a corporation to its owners.
 7.3
LEGAL ISSUES AND
BUSINESS OWNERSHIP
 Regulations That SHERMAN ACT
This law makes it illegal for competitors to get together
Promote Competition and set prices on the products or services they sell.

CLAYTON ACT
This law states that it is illegal for a business to
ANTITRUST LEGISLATION require a customer to buy exclusively from it or to
purchase one good in order to be able to purchase
Beginning in 1890, another good.
laws were created
that made ROBINSON-PATMAN ACT
monopolies in certain This law protects small businesses from unfair pricing
industries illegal. A practices. It makes it illegal to discriminate by charging
monopoly is also different prices to customers.
called a trust, so
these laws were
WHEELER-LEA ACT
This law bans unfair or deceptive actions or practices
called antitrust laws. by businesses that may cause an unfair competitive
advantage.
 Regulations That
Promote Competition JUSTICE DEPARTMENT
The Justice Department’s Antitrust Division takes legal
action against any business it believes has tried to
GOVERNMENT AGENCIES THAT monopolize an industry. It also prosecutes businesses
PROTECT COMPETITION that violate antitrust laws, which can lead to large fines
and jail sentences.
The Antitrust Division
of the Justice
Department and the FEDERAL TRADE COMMISSION
Federal The Federal Trade Commission (FTC)
Trade Commission deals with issues that touch the economic life of every
are two government American. The FTC administers most of the laws dealing
agencies that work to with fair competition and pursues vigorous and
make effective law enforcement.
sure competition
remains fair.
 INTELLECTUAL PROPERTY
Intellectual property is the original, creative work of an artist or inventor and may
include such things as songs, novels, artistic designs, and inventions. Such works
may be registered for special government protections—including patents,
trademarks, trade names, and copyrights

the grant of a property right to an inventor to exclude

PATENTS
others from making, using, or selling his or her invention.

a form of intellectual property law that protects original works of

COPYRIGHTS
authorship, including literary, dramatic, musical, and artistic
works.

a name, symbol, or special mark used to identify a business or

TRADEMARKS
brand of product. Products that are trademarked are identified
by the TM or ® symbol.
 LAWS THAT PROTECT CONSUMERS

State and local governments require some businesses to have

LICENCES licenses. If you own a business that requires a license, you and
your employees may need to complete training requirements.

Local governments often establish zoning regulations that

ZONING LAWS control what types of buildings canbe built in what areas.

A variety of laws and government agencies protect the public

CONSUMER against harmful products. You will have to make sure that the
PROTECTION
products you manufacture or sell meet all consumer protection
LAWS
standards.
 CONSUMER PROTECTION LAWS
THE FEDERAL FOOD, DRUG, AND COSMETIC ACT OF 1938
This law bans the sale of impure, improperly labeled, falsely
guaranteed, and unhealthful foods, drugs, and cosmetics.

THE CONSUMER PRODUCT SAFETY ACT OF 1972

This law sets safety standards for products other than food and drugs.

THE TRUTH-IN-LENDING ACT OF 1968

This law requires all banks to calculate credit costs in the same way.

THE CONSUMER PRODUCT SAFETY ACT OF 1972

This law is part of the Truth-in-Lending Act and helps consumers
correct credit card billing errors. This law also gives the consumer a
method for resolving problems relating to product quality.
WHEN TO GET LEGAL ADVICE

HIRE A LAWYER
 WHEN TO GET LEGAL ADVICE
CONTRACTS
A contract is a legally binding agreement between two or more persons or parties.
For a contract to be considered legally binding, certain elements must be included
when the contract is created. These elements are agreement, consideration,
capacity, and legality.

AGREEMENT CONSIDERATION CAPACITY LEGALITY

occurs when one is what is means the parties a contract cannot
party offers or exchanged for the are legally able to have anything in it
agrees to do some- promise. enter into a binding that is illegal or that
thing and the other agreement. would result in
party accepts. illegal activities.
 Thank You!
Group 6
Colegio, Kristel
Lucero, Juliana
Marasigan, Shane Alexis H.