Recreation Systems

The 3 Sectors

CommercialPublic

Nonprofit

Commercial Sector

3 basic forms:

Sole proprietor

Partnerships

Corporations

Franchises

Sole Proprietor

One owner

Unlimited liability

Personally held liable for any debt

or legal problems

Can lose an unlimited amount of

money

Sue business & owner

Advantages & disadvantages….

Sole Proprietorship

Advantages DisadvantagesTotal control over decision making Limited managerial experience

Revenues taxed only once (corporate tax exempt)

Unlimited personal liability

Great flexibility Limited access to capital funds

Easy to form Investors will not invest in SP

All profits retained by owner 80% fail

Easy to sell

Partnership

Two or more entities

Least popular form of ownership

Have written agreement of each owners’ responsibilities

4 types of partners….

4 forms of Partnerships

1. General Partnership

Common form of partnership

Each partner is fully responsible for liabilities

Share the costs & benefits of the business

4 forms of Partnerships

2. Limited Partnership Also, very common

One or more partners can be limited

One partner must not be a limited partner, but GP

Limited partner has limited authority

Liability based on amount of capital invested

Names of limited partners not in name

4 forms of Partnerships

3. Secret partner

Identity of an owner is unknown to the public

Negative business history Simply doesn’t want to be known

Secret partner can participate in management but has limited financial responsibility based on investment

4 forms of Partnerships

4. Dormant partner (silent partner)

Invests only money

Not involved in management of the organization

Liable only for the amount of his/her investment

Mix of partnerships & company Owners are called members rather

than shareholders Taxed as a partnership

(as income for individual) Has limited liability of a company Easier to form than C or S Corp Dissolves when a member dies or

wants out

LLC & LLP

Partnership

Advantages DisadvantagesSome control over decision making

Limited managerial experience

Revenues taxed only once (corporate tax exempt)

Joint unlimited liability (except LLC & LLP)

Great flexibility Limited access to capital funds

Easy to form When partnership dissolves, entire business must be liquidated

All profits retained by owner Partners must get permission from others to leave business

Easy to sell

C Corporations

S Corporations

Franchises

Corporations

C Corporations

Seen as a fictional, legal person & can…. Own, manage, & sell property Sign binding contracts Sue & be sued Pay corporation taxes

20% of all businesses & 80% of ave. annual sales

Owners are shareholders Limited liability up to amt of investment Run by a board of directors representing the shareholders

S Corporations Like C Corporation in formation Distributes all profits so that the

corporation isn’t taxed Shareholders are taxed since they get

the profits Only form if ALL profits are distributed

$2 million in profits made, $1 million reinvested, taxed on $2 million

S Corporations

Corporations

Advantages DisadvantagesUnlimited life of corporation Complex formation process

Creditors can’t come after shareholders beyond their investment

Multitude of government regulations

Easy to transfer ownership – just sell stock

Double taxation

Obtain capital through selling stock or borrowing money using company assets as collateral

Financial records are public, privacy lost

Ability to hire broad base of talented managers

Franchises

Method of doing business, not ownership 1 co. grants another business right & license

3 Forms Trade name

True Value; Western Auto Product distribution

License to distribute product name, car dealers Pure Franchise

Complete business format Products, name, physical plant, marketing Restaurants, Discovery Zone, hotels

Franchise

Advantages DisadvantagesOwnership of a small business quickly

Freedom, limited by contract

Product & brand name Cost of initial franchise fee & royalty fees

Support from franchisor

Public Sector

Where do you find public sector parks & recreation agencies?

Public Sector

Tax supported

3 types Federal Agencies State Agencies Local Agencies

Local Parks & Recreation

Municipalities

Cities, townships,

counties, boroughs

Budget from the city…

what source?

Guided by several laws….

Local Parks & Recreation

Enabling laws State enables local gvts to acquire, develop,

maintain rec areas

Set parameters on: What types of gvts can operate rec agencies Authority of agency Fiscal practices Governing board Operational authority

Enables & not mandates

Local Parks & Recreation

Home Rule Legislation

Allows local gvts to control issues at local level without state interference

Power to buy, sell, lease property

Levy higher sales taxes

Utilize intergovernmental agreements

Change structure of government

Economic development practices

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What is the difference between a parks & recreation department

and a parks & recreation district?

Strengths & weaknesses of each?

Local Parks & Recreation Special District laws

Independent governing bodies

Direct taxing & bonding ability

20% of the 31,555 special districts in US relate to natural resources

9 states over 1000 special districts IL leads with 2,920….

Counties Municipalities Townships School Districts Special Rec Districts Fire Protection Highways Health Hospitals

Housing and Community Dev.

Libraries Drainage and Flood Control Irrigation, Water

Conservation Parks and Recreation Sewerage Water Supply Utilities Other Than Water Cemeteries Sewage and Water Supply

IL Special Districts

State Agencies

Est. thru state legislation

State parks & forests

State budget allocations

Focus: Outdoor rec, resource mgt, arts,

tourism IL Arts Council, IL Bureau of Tourism

Federal Agencies

Authority from congress

Fed p & r agency focus: Natural resources management Welfare of the people

Budget from congress

NPS, BLM, Historical & Cultural sites, VA, MWR

Nonprofit Sector

What are some characteristics of nonprofit organizations?

Nonprofit Agencies

Formally constituted for public benefit

Funded through fees, charges, donations &

grants

Private as opposed to governmental (NGO’s)

Not profit distributing, but can make a profit

Self-governing - boards

Nonprofit Agencies

Federal, sales & property tax exempt “Unrelated business income taxes”

Special postage rates Not all donations to npo are tax

exempt Exempt from labor unions Nonprofit Corporation…board

liability Types of nonprofits….

Nonprofit Agencies

Organization Mission Door County (WI) Sample orgs

501(c)(3) Religious, charitable, or educational & exist for public benefit

American Bowling Congress Inc; Door County Skate Inc; Little League Baseball, Inc; Peninsula Youth Soccer Association

501(c)(4) Civic leagues, social welfare organizations & local associations of employees

Four Seasons; Peninsula Golf Association Inc; Northern Door Volleyball Association Incorporated; Door County Rod & Gun Club Inc; Door Devils Motorcycle Club Inc

501(c)(7) Social clubs organized for recreation & other purposes for the benefit of its members

Door County Golf Association; Sturgeon Bay Yacht Club; Trilliun Quilt Guild

* 20+ nonprofit categories in the IRS code

Sector issues

Where do the three sectors get their funding?

What do they do with profits?

Nonprofit Issues

Sector/ Income Taxes Grants,

donations, sponsorship

s

Fees & Charges

Investment

Contractual

Commercial Sector

Pays them – property, income, sales

Minimal Major source

Major source

Can be a major source

NPO Doesn’t pay or receive

Major source

Major source

Limited, based on available cash

Growing importance

Public Sector

Essential

Growing importance

Major source

Limited, based on available cash

Growing importance

Commercial Owners, shareholders

NPO Back into agency

Public Into agency or back to city

Where do the profits go?