- BBA 1101 -INTRODUCTION TO BUSINESS

Summer 2014-15

Faculty: Shama Islam

Forms of Business Ownership

Chapter # 2

LECTURE 2

Each form of business ownership has advantages and disadvantages.

If you are planning to go into any type of business, you need to review these pros and cons and determine which form of ownership meets your needs.

WHAT TYPE OF BUSINESS IS RIGHT FOR YOU?

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Capital RequirementsThe amounts of funds necessary to finance the operation.

Time RequirementsThe time needed to operate the business and provide guidance to employees.

Tax LiabilityWhat taxes a business must pay to variousgovernments on earnings of business.

What Factors Should We Consider?

What Factors Should We Consider? Management Abilities

The skills needed to plan, organize and control the business.

RiskThe amount of personal property a person is willing to lose by starting a business.

ControlThe amount of authority the owner exercises.

Sole ProprietorshipA business that is owned and usually managed by one person/individual.

PartnershipA business owned by two or more people.

CorporationA legal entity with authority to act and have liability separate from its owners.

FORMS OF BUSINESS

SOLE PROPRIETORSHIP

A business that is owned and usually managed by one person/individual. The person may receive help from others in operating the business, but is the only boss: the sole proprietor is the company.

￭ Small Independent Retail Shops￭ Hardware store￭ Bakery￭ Restaurant￭ Tea-stall

SOLE PROPRIETORSHIP

The Sole Proprietor often aided by one or two employees, operates a shop that frequently caters to a group of regular customers.

The Capital (money) needed to start and operate the business is normally provided by the owner through personal wealth or borrowed money.

SOLE PROPRIETORSHIP: FEATURES

Capital provided by one through personal wealth or borrowed money

Should be an active manager

Control the operation

Supervise the employees

Make and take the decisions

Should have good managerial ability

SOLE PROPRIETORSHIP: ADVANTAGESEasy of Starting and Ending the Business

All one has to do to start a sole proprietorship is buy or lease the needed equipments and put up some announcements saying s/he is in business. It is just as easy to get out of business; s/he simply stops.

Being Your Own BossWorking for others simply does not have the same excitement as working for own-self—at least, that’s the way sole proprietorship feel.

SOLE PROPRIETORSHIP: ADVANTAGESControl

The owner has the freedom to make the final decisions on any sector.

SecrecyAs the owner is one there is no change or limited changes to be shared of the business secret information.

Pride of OwnershipPeople who own and manage their own businesses are rightfully proud of their work. They deserve all the credit for taking then risks and providing needed goods or services.

SOLE PROPRIETORSHIP: ADVANTAGES Sole Participation in Profits and Losses

All profits earned or losses incurred by operating the business are to be shared by the Individual.

Retention of Company ProfitOther than the joy of being boss, there is nothing like the pleasure of knowing that one can earn as much as possible and not have to share that money with anyone.

Tax BreaksA major advantage of the proprietorship is that the businesses pays no income tax. A Corporation pays taxes on profits; its owners, the shareholders pay taxes on dividends. Whereas, a sole proprietor pays no tax on business profits, instead the person is taxed as an individual on all his/her income earned from the business.

SOLE PROPRIETORSHIP: DISADVANTAGESFew Fringe Benefits

As the owner is the boss, s/he loses the fringe benefits that often come from working for others. (Health insurance, disabilities insurance, sick leave and vacation pay)

Limited GrowthExpansion is often show since a sole proprietorship relies on its owner for most of its creativity, business know-how and funding.

Limited Life SpanDeath, Illness, bankruptcy or retirement of the owner terminates the proprietorship.

SOLE PROPRIETORSHIP

The sole proprietor is usually an active manager, working in the business. He or she controls the operations, supervises the employees and makes the decisions.

The sole proprietor who is the owner usually accounts for the success and failure of the business.