BusinessEssentialsTwelfthEditionChapter3Entrepreneurship,NewVentures,andBusinessOwnershipCopyright?2019,2016,2013PearsonEducation,Inc.AllRightsReserved.IntroductionInthischapter,weexamineconvertingagreatbusinessideaintoaprofitableenterpriseassessingthemarketpotentialfornewandup-and-comingbusinessesthebusinessplan,reasonsforsuccessandfailureadvantagesanddisadvantagesofdifferentkindsofownershipLearningObjectives(1of2)Definesmallbusiness,discussitsimportancetotheU.S.economy,andexplainpopularareasofsmallbusiness.Explainentrepreneurshipanddescribesomekeycharacteristicsofentrepreneurialpersonalitiesandactivities.Describedistinctivecompetence,thebusinessplan,andthestart-updecisionsmadebysmallbusinessesandidentifysourcesoffinancialaidavailabletosuchenterprises.LearningObjectives(2of2)Discussthetrendsinsmallbusinessstart-upsandidentifythemainreasonsforsuccessandfailureamongsmallbusinesses.Explainsoleproprietorships,partnerships,andcooperativesanddiscusstheadvantagesanddisadvantagesofeach.Describecorporations,discusstheiradvantagesanddisadvantages,andidentifydifferentkindsofcorporations;explainthebasicissuesinvolvedinmanagingacorporationanddiscussspecialissuesrelatedtocorporateownership.WhatIsa“Small”Business?Smallbusinessonethatisindependent(notpartofalargerbusiness)andthathasrelativelylittleinfluenceinitsmarketSmallBusinessAdministration(SBA)governmentagencychargedwithassistingsmallbusinessesTheImportanceofSmallBusinessintheUnitedStates(1of2)TheImportanceofSmallBusinessintheUnitedStates(2of2)JobcreationInnovationContributionstobigbusinessJobCreationSmallbusinesseshaveaccountedforabout40percentofallnewjobsinhigh-technologysectorsoftheeconomySmallbusinessesaregenerallythefirsttohireintimesofeconomicrecoveryPopularAreasofSmall-BusinessEnterpriseEntrepreneurshipEntrepreneurbusinesspersonwhoacceptsboththerisksandtheopportunitiesinvolvedincreatingandoperatinganewbusinessventureEntrepreneurshiptheprocessofseekingbusinessopportunitiesunderconditionsofriskEntrepreneurialCharacteristicsResourcefulnessConcernforgood,personalcustomerrelationsStrongdesiretobetheirownbossesDealwithuncertaintyandriskUnderstandingDistinctiveCompetenciesEstablishedMarketoneinwhichmanyfirmscompeteaccordingtorelativelywell-definedcriteriaNicheasegmentofamarketthatisnotcurrentlybeingexploitedFirst-MoverAdvantagesFirst-moveradvantageisanyadvantagethatcomestoafirmbecauseitexploitsanopportunitybeforeanyotherfirmdoesStartingandOperatingaNewBusinessBusinessplanDocumentinwhichtheentrepreneurdescribesherorhisbusinessstrategyforthenewventureanddemonstrateshowitwillbeimplementedCraftingaBusinessPlanSettingGoalsandObjectivesSalesForecastingFinancialPlanningStartingtheSmallBusinessStartingaSmallBusinessFranchisearrangementinwhichabuyer(franchisee)purchasestherighttosellthegoodorserviceoftheseller(franchiser)FranchisingAdvantagesProvenbusinessopportunityAccesstomanagementexpertiseDisadvantagesStart-upcostsOngoingpaymentsManagementrulesandrestrictionsStartingfromScratchWhoandwherearemycustomers?Howmuchwillthosecustomerspayformyproduct?HowmuchofmyproductcanIexpecttosell?Whoaremycompetitors?Whywillcustomersbuymyproductratherthantheproductofmycompetitors?FinancingaSmallBusiness(1of2)PersonalresourcesLoansfromfamilyandfriendsBankloansVenturecapitalcompaniesSmall-BusinessInvestmentCompanies(SBICs)MinorityEnterpriseSmall-BusinessInvestmentCompanies(MESBICs)SBAfinancialprogramsFinancingaSmallBusiness(2of2)VentureCapitalCompanygroupofsmallinvestorswhoinvestmoneyincompanieswithrapidgrowthpotentialSmall-BusinessInvestmentCompany(SBIC)government-regulatedinvestmentcompanythatborrowsmoneyfromtheSBAtoinvestinorlendtoasmallbusinessTrendsinSmall-BusinessStart-Ups(1of2)EmergenceofE-CommerceTheInternetprovidesfundamentallynewwaysofdoingbusinessCrossoversfromBigBusinessMorebusinessesarebeingstartedbypeoplewhohaveoptedtoleavebigcorporationsandputtheirexperiencetoworkforthemselvesOpportunitiesforMinoritiesandWomenMoresmallbusinessesarealsobeingstartedbyminoritiesandwomenEmergenceofE-commerceReasonsWomenGiveforStartingBusinessesTrendsinSmall-BusinessStart-Ups(2of2)GlobalOpportunitiesManyentrepreneursarealsofindingnewopportunitiesinforeignmarketsBetterSurvivalRatesToday,44percentofnewstart-upscanexpecttosurviveforatleastfouryearsReasonsforFailureManagerialincompetenceorinexperienceNeglectWeakcontrolsystemsInsufficientcapitalReasonsforSuccessHardwork,drive,anddedicationMarketdemandfortheproductsorservicesbeingprovidedManagerialcompetenceLuckNoncorporateBusinessOwnershipSoleProprietorshipbusinessownedandusuallyoperatedbyonepersonwhoisresponsibleforallofitsdebtsGeneralPartnershipbusinesswithtwoormoreownerswhoshareinboththeoperationofthefirmandthefinancialresponsibilityforitsdebtsSoleProprietorshipAdvantagesFreedomSimpletoformLowstart-upcostsTaxbenefitsDisadvantagesUnlimitedliabilityLimitedresourcesLimitedfundraisingcapabilityLackofcontinuityPartnershipsAdvantagesMoretalentandmoneyMorefundraisingcapabilityRelativelyeasytoformLimitedliabilityforlimitedpartnersTaxbenefitsDisadvantagesUnlimitedliabilityforgeneralpartnersDisagreementsamongpartnersLackofcontinuityComparativeSummary:ThreeFormsofBusinessTable3.1ComparativeSummary:ThreeFormsofBusinessOwnershipBusinessFormLiabilityContinuityManagementSourcesofInvestmentProprietorshipPersonal,unlimitedEndswithdeathordecisionofownerPersonal,unrestrictedPersonalGeneralPartnershipPersonal,unlimitedEndswithdeathordecisionofanypartnerUnrestrictedordependsonpartnershipagreementPersonalbypartner(s)CorporationCapitalinvestedAsstatedincharter,perpetualorforspecifiedperiodofyearsUndercontrolofboardofdirectors,whichisselectedbystockholdersPurchaseofstockAlternativestoGeneralPartnershipsLimitedPartnershipAllowsforlimitedpartnerswhoinvestmoneybutareliablefordebtsonlytotheextentoftheirinvestmentsGeneral(oractive)partnersrunthebusinessMasterLimitedPartnershipMasterpartnerhasmajorityownershipandrunsthebusiness;minoritypartnershavenomanagementvoiceCooperativesCombinethefreedomofsoleproprietorshipswiththefinancialpowerofcorporationsGroupsofsoleproprietorshipsorpartnershipsagreetoworktogetherfortheircommonbenefitProportionsofU.S.FirmsinTermsofOrganizationTypeandSalesRevenueTheCorporateEntityCorporationbusinessthatislegallyconsideredanentityseparatefromitsownersandisliableforitsowndebts;owners’liabilityextendstothelimitsoftheirinvestmentsCorporationsAdvantagesLimitedliabilityContinuityStrongerfundraisingcapabilityDisadvantagesCanbetakenoveragainstthewillofitsmanagementDoubletaxationofprofitsComplicatedandexpensivetoformTypesofCorporations(1of4)Table3.2TypesofCorporationsTypeDistinguishingFeaturesExamplesCloselyHeldStockheldbyonlyafewpeopleSubjecttocorporatetaxationBlueCross/BlueShieldMasterCardPrimestarPubliclyHeldStockwidelyheldamongmanyinvestorsSubjecttocorporatetaxationAppleStarbucksTexasInstrumentsSubchapterSOrganizedmuchlikeacloselyheldcorporationSubjecttoadditionalregulationSubjecttopartnershiptaxationMinglewoodAssociatesEntechPestSystemsFrontierBankLimitedLiabilityOrganizedmuchlikeapubliclyheldcorporationSubjecttoadditionalregulationSubjecttopartnershiptaxationPacificNorthwestAssociatesGlobalGroundSupportRitzCarltonProfessionalSubjecttopartnershiptaxationLimitedbusinessliabilityUnlimitedprofessionalliabilityNormanHui,DDS&AssociatesB&HEngineeringAnderson,McCoy&OriaMultinationalSpansnationalboundariesSubjecttoregulationinmultiplecountriesToyotaNestléGeneralElectricTypesofCorporations(2of4)CloselyHeld(orPrivate)CorporationacorporationwhosestockisheldbyonlyafewpeopleandisnotavailableforsaletothegeneralpublicPubliclyHeld(orPublic)CorporationA

corporationwhosestockiswidelyheldandavailableforsaletothegeneralpublicSCorporationahybridofacloselyheldcorporationandapartnership,organizedandoperatedlikeacorporationbuttreatedasapartnershipfortaxpurposesTypesofCorporations(3of4)LimitedLiabilityCorporation(LLC)hybridofapubliclyheldcorporationandapartnershipinwhichownersaretaxedaspartnersbutenjoythebenefitsoflimitedliabilityProfessionalCorporationformofownershipallowingprofessionalstotakeadvantageofcorporatebenefitswhilegrantingthemlimitedbusinessliabilityandunlimitedprofessionalliabilityTypesofCorporations(4of4)Multinational(orTransnational)CorporationformofcorporationspanningnationalboundariesManagingaCorporationCorporateGovernancerolesofshareholders,directors,andothermanagersincorporatedecisionmakingandaccountabilityCorporateGovernanceStockholder(orShareholder)ownerofsharesofstockinacorporationBoardofDirectorsgoverning

bodyofacorporationthatreportstoitsshareholdersanddelegatespowertorunitsday-to-dayoperationswhileremainingresponsibleforsustainingitsassetsOfficerstopmanagementteamofacorporationSpecialIssuesinCorporate