Chapter 4 –Selecting a Type of OwnershipBusiness OwnershipSpring 2007Williams

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

Lesson 4.2Own 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 businessStart your own 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. (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 Disadvantages:

Partners may not like shared profits

DISAGREEMENTS

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.