Business (BUSINESS STRUCTURES)

stock

shares of a company that can be bought and sold by individuals or firms; stocks are issued by a company to raise capital

investment capital

the amount of money needed to launch and sustain a business for a set amount of time while it gets off the ground

limited liability company

a type of business ownership combining several features of corporation and partnership structures, but is neither a corporation nor a partnership; the owners are members, not partners or shareholders, and the number of members is unlimited

franchise

an agreement by contract with a company to sell its products or services within a specific territory

partnership

an association of two or more people operating the business as co-owners and sharing in the profits and loss according to a written agreement

nonprofit organization

established for the purpose of not making a profit, often service oriented

Review

the three legal forms of business ownership: sole proprietorships, partnerships, and corporations; alternative types of business ownership, including franchises, nonprofit organizations, and cooperatives.

corporation

though this type of business is owned by many people, the law treats it as though it is one person

Franchise

When you pick up some McDonald's french fries, Starbucks drinks, or movies from Blockbuster, you are utilizing franchise businesses. A franchise is essentially a license to own and operate an existing company. The franchisee would then pay royalties to the franchisor, or the person who owns the original company. Taco Bell®, Dairy Queen®, and Build a Bear® are examples of a franchise.

sole proprietorship

a business owned by only one person

cooperative

a jointly-owned enterprise engaging in the production or distribution of goods or the supplying of services, operated by its members for their mutual benefit, typically organized by consumers or farmers

shareholder

a person who became an owner of a corporation by buying stock

Cooperatives

A cooperative is similar to a corporation in that it exists separately from the company. A cooperative can also sell stock and choose to have a board of directors run it. Because cooperatives are owned by their members and operate for the purpose of saving money on purchasing particular goods and services, they can also choose to share factory facilities as well as warehouse space.

Corporation

A corporation is a very different type of ownership than sole proprietorship or partnership. The law considers it an artificial entity with the same rights and responsibilities as a person. It is owned by many people, but it exists separate from its owners. Forming a corporation for your business has definite advantages—stockholders have limited liability, corporations have the ability to raise a lot of investment capital, corporations can sell stocks to raise money, and stockholders earn dividends annually on profits. The disadvantages of a corporation include government regulation and that owners must answer to a board of directors.

Partnership

In a partnership, two or more people share the ownership of the business. The owners draw up a contract as to how much money each will invest, the role each will play, and the percentage of profits each will receive. To avoid misunderstandings, clarify expectations, and possibly save relationships, everything agreed upon should be put in writing with the help of an attorney. Some of the advantages of a partnership are that "two heads are better than one" when dealing with decisions and issues. Partnerships are relatively simple to get started, and often more investment capital is available at start-up than with a sole proprietorship. However, partners are still held personally accountable for the debts of the business. If you believe you can get along well with a business partner, this might be the right type of ownership for you.

Nonprofits

Some businesses are not in business to make money, but rather to serve a community. These are called nonprofit organizations, or a 501(3)(c). A nonprofit must register with the government, like a corporation, and may be run by a board of directors. A major advantage for the nonprofit organization is that it doesn't pay taxes. Rather than relying on investors, nonprofits rely on grants and donations. Though donors don't receive money back like investors, they can deduct the donations from their taxes.

Franchise Advantages

The advantages of owning a franchise include an established name, immediate start-up, shared advertising expenses, smaller initial capital investment, and the knowledge that a franchise is probably going to prosper as long as it is placed well in the market.

Franchise Disadvantages

The disadvantages of owning a franchise include having to follow a protocol set by the franchisor, complicated agreements, and having to work with other franchisees of your chosen franchise. A franchise is not completely under your control.

Small-Business Owner

The most basic form of business ownership is sole proprietorship. This is a single-owner entity. Most small businesses, which make up about two-thirds of the businesses in the United States, are sole proprietorships. A sole proprietorship puts the business owner in the driver's seat. The owner not only has total control, but also total responsibility for the business. Getting started with this type of business is simple, but the life of the business is limited to the life of the owner. If something happens to the owner, the business ceases to exist. Owners are also completely responsible for any liabilities that may arise, which can affect the owner's personal finances and property.