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Business Structures (Types (Sole Proprietorship (Example (Operating a…

- - - - Owned and managed by one person
      - Indistinguishable from the owner
      - Operated in the owners name or a trade name
    - - Easiest and simplest form of organization
      - Free of many regulations and formalities of other types of ownership.
      - The owner retains 100% of after tax profits.
    - - Liability is unlimited (i.e, proprietor is fully or personally liable for business obligations)
      - Capital is limited to what the owner can provide or borrow
      - Business tied to owner, If owner is unable to to manage due to illness, business operations could be seriously disrupted.
      - Owner may not have adequate skills
    - - Operating a restaurant
      - Start a bookkeeping business
      - Become a freelance writer
      - Providing a housekeeping service
      - Providing hardware repair services
      - Offering private tutor lessons
      - Becoming a freelance graphic designer
  - - - Partnerships are similar to Sole Proprietorship where two or more people own the business . they tend to be more complex in structure versus a Sole Proprietorship.
      - The partnership arrangement should be documented in a formal agreement, outlining the terms under which the partnership is formed and is to be operated
      - Have unlimited personal liability
    - - General
        
        Advantages
        
        Better management through more diversified skill set
        
        More capital available through distributed ownership
        
        Better ability to get credit because more owners with personal net worth.
        
        Disadvantages
        
        Partners are jointly and severally liable for all debt obligations of the partnership
        
        Legal actions could be taken against partners personally - no separation between business and the owners.
      - Limited
        
        Points
        
        General partners manage the business
        
        Limited partners contribute capital (cash or other assets)
        
        Limited partners liability ends with their contribution
        
        General partners have unlimited personal liability
        
        Advantages
        
        Liability is limited only to the amount of capital contributed by limited partners.
        
        General partners can raise cash without involving outside investors in management of business
        
        Disadvantages
        
        General partners are personally liable for business debts
        
        More expensive to create than general partnership
        
        Suitable mainly for companies that invest in real estate
      - Limited liability
        
        Points
        
        Extension of a general partnership
        
        All partners are protected from the actions of the other partners
        
        Partner is personally liable for damages resulting from fraudulent act
        
        Liability of other partners is limited to the assets of the partnership
        
        Advantages
        
        All partners have limited liability
        
        Flow-though taxation status (i.e income generated is treated as personal income of partners)
        
        Disadvantages
        
        Restrictions to certain professions such as physicians, attorneys, doctors, financial advisors, and accountants. A business owner may not always be able to create an LLP.
        
        Examples
        
        Physicians
        
        Attorneys
        
        Accountants
        
        Architects
        
        Licensed financial advisors
        
        Doctors
        
        Veterinarians
        
        Undertakers
      - Joint venture
        
        Points
        
        Pooling the resource of two or more entities (Individual or corporate)
        
        Formed to complete one particular transaction
        
        Governed by a joint venture agreement
        
        Sharing of gross revenues rather than profit
        
        Liability is limited to the joint ventures portion of debt
        
        Advantages
        
        Allows sharing of risks with a venture partners
        
        Can be flexible(for example, a joint venture can have a limited life span)
        
        Disadvantages
        
        It takes time and effort to build the right relationship, and partnering with another business can be challenging
        
        Examples
        
        https://news.microsoft.com/2019/01/15/walgreens-boots-alliance-and-microsoft-establish-strategic-partnership-to-transform-health-care-delivery/
        
        https://www.ibm.com/blogs/cloud-computing/2019/05/10/vodafone-idea-signs-5-year-agreement-ibm/
        
        https://www.convergentep.com/convergent-shell-jv/
  - - - Separate legal entity from the shareholders
      - Assets or liabilities acquired or owned belong to the corporation
      - Has an indefinite life
      - Can be terminated by bankruptcy, merger or voluntary dissolution
      - Character depends on legislation of the jurisdiction it was incorporated in
    - - Greater access to capital than other structures
      - Liability to shareholder is restricted to investment
      - Profits are taxed in the company and often corporate taxes are lower than personal tax rates.
    - - Incorporation can be expensive
      - More formal regulations, including complex tax rules
      - Corporation has no rights outside its articles of corporation
    - - Private companies
        
        Points
        
        Shares are closely held by known shareholders
        
        Shares are not available to general public on a stock exchange
        
        Restricted rights to transfer shares
        
        Board of directors have authority to approve or reject any proposal share transfer
        
        Limited number of shareholders depending on the jurisdictions
        
        Examples
        
        Bridgewater
        
        Mars
        
        Dell
        
        McKinsey & Company
      - Public companies
        
        Points
        
        Shares may be publicly traded on a stock exchange, with no limit to the number of shareholders and restrictions on the right transfer
        
        Examples
        
        Royal Dutch Shell
        
        ICBC
        
        Apple
        
        CITI
      - Professional corporations
        
        Points
        
        Permitted to practice in a profession such as - Doctors, Lawyers, Architects, Engineers, Public accountants, Physicians
      - In US
        
        C Corporation
        
        Stokes protected - limited liability
        
        Profits taxed within corporation as a separate entity
        
        Allowed to leave profits in company
        
        Multiple classes of stock allowed
        
        S Corporation
        
        Stokes protected - limited liability
        
        Profits flow through to personal tax returns
        
        Only one class of stock allowed
        
        No more than 100 stockholders
  - - - An arrangement in which seller (Franchisor) sells a buyer (Franchisee) the right to sell or distribute products/services made available through the franchisor, under the franchisor's brand
      - can be carried in the form of sole proprietorship, partnership, corporation
    - - Proven market and established operating procedures
      - Training on how to run the business is provided
      - Operate under a known name or trademark
      - Requires less working capital than a similar non-franchise business
    - - Highly restrictive operating guidelines - franchisor makes all decisions.
      - Personal guarantees provided by the franchisee might have significant impact on credit decisions
      - Royalties, quotas and other service fees can negatively impact profitability
      - Inability to set prices may impact ability to be competitive at a local level
    - - McDonalds
      - Burger King
      - Subway
      - KFC
      - Marriott International
      - 7-Eleven