CH (1)

ENTREPRENEURSHIP
AND STARTING
A SMALL BUSINESS

LEARNING

objectives

1- Explain the traits a successful entrepreneur possesses

2- Discuss the types of business ownership and the advantages and
disadvantages of each .
3- Describe the alternative to starting your business from scratch .
4- Understand how a business can grow through mergers , acquisitions , and
buyouts .
5- Describe the five main area focus when starting a small business .

Section (1): WHAT DOES IT TAKE TO BE AN ENTREPRENURE

1- Advantages and disadvantages to having a home office: Advantages:
a- Able to save many an office space and commute expenses.
b- Enjoy the flexibility of not having to "punch a clock."
Disadvantages:
a- Require a great deal of self-discipline.
b- Must be sure not to work around the clock.
2- The common characteristics of all successful entrepreneurs:
A- Self a directed:-You should be comfortable with your business and selfdisciplined.
B- Self b nurturing:-You must believe in your idea.
C- Action oriented: - Burning desire to realize, actualize and build your
dream into reality.
D- Highly energetic:E- Tolerant of uncertainty: - Successful entrepreneurs take only calculated
risks. Still, they must be able to take some big risks sometimes.

Flashlight approach: - Every time entrepreneurs traveled on business,

they were expected to back with at least one idea worth more than the cost
of their trip.
3- The reasons of that many people decide to take the risk of becoming an
entrepreneur:a- Opportunity.
b- Profit.
c- Independence.
d- Challenge.
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SECTION (2) : TYPES OF BUSINESS OWNERSHIP

Section Outline:A. Sole proprietorships
B. Partnership
C. Corporations
Types of business ownership The three main legal forms for a business:-

A- Sole proprietorships :A form of ownership that involves one individual called sole proprietor.

Sole proprietorships
The advantages
The disadvantages
1) Easy to start up business and
1) Unlimited liability (The
easy to get out of it.
responsibility of business owners
2) You get to be your own boss.
for all of the debts of the business.
3) Retaining of the profit.
2) Work for many hours.
4) There are no special federal taxes 3) Lack of the fringe benefits due to
(taxes of personal income only).
sick leave, health insurance and
unpaid vacation time.
4) Limited lifespan.

B- Partnership
Legal form of business with two or more owners

(Types of partnership)
i. General partnership :A partnership in which all owners share in operating the business and in
assuming liability for the business's debts.
ii. Limited partnership :A partnership with one or more general partners And one or more limited
partners.
General partner :-An owner (partner) who has unlimited liability and
is active in managing the firm .
Limited partner :-An owner who invests money in the business, but doesn't
have any management responsibility or liability for losses, beyond the
investment.
iii. Master limited partnership (MLP) :Structured much like a corporation in that acts like a corporation and is
traded on the stock exchanges like a corporation, but taxed like a artnership
and thus avoids the corporate income tax.
iv.

Limited liability partnership (LLP( :-

LLPs limit partners' risk of losing their personal assets to only their
own acts and omissions, and to the acts and omission of people
under their supervision.
Limited liability :-Means that limited partners are not responsible for the
debts of the business, beyond the amount of their investment-their
liability is limited to the amount they put into the company; their personal
asset are not at risk.
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Limited liability partnership (LLP)

The advantages
The disadvantages
1) limit partners' risk of losing their
personal assets
2) There are more financial
resources.
3) Pooled knowledge.

1) The division of profits.

2) General partner is liable for the
debts of the firm.
3) Conflict among the partners.
4) It's difficult to get out.

C- Corporations :Corporate governance :-The processes, customs, policies, laws,

and institutions affecting the way in which a corporation is directed,
administered, or controlled.
Board of directors:-The group ultimately responsible for the decisions of a
business.

Types of corporation
i.

C corporation :- A conventional ( c ) corporation is a form of business

ownership that provides limited liability.
OR
A state-chartered legal entity with the authority to act and have liability
separate from its owners.
HINT: stockholder are its owners.

ii.

S-corporation :- A type of legal entity in which the biggest advantage is that

it is taxed like a sole proprietorship It's created by the government.

Restrictions on S-corporation : a- No more than 100 shareholders.

b- Shareholders are individuals, estates, citizens, or permanent residents.
c- One class of stock.
d- 25% only passive income ( rent or interest)
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iii. Limited liability companies (LLCs)

Is similar to the S-corporation, but without the special restrictions.
Advantages of LLCs:1. Limited liability.
2. Choose the form of taxation they want.
3. The ownership rules are flexible.
4. More operating flexibility.
Disadvantages of LLCs:
1- Cannot sell stock.
2- There is more paperwork required to start an LLC.

Corporation
The advantages
1. The ability to get more money
for investment.
2. Allowed to sell stock : Boost the growth of the
company.
Easy to change ownership.
Easier to draw talented
employees.
Limited liability.

The disadvantages
1. A lot of paperwork.
2. Has two tax returns (unless it's
an S-corporation(
3. Conflict often occurs between
stockholders and board
members.

Double taxation :- Occurs when the owners of the corporation are

taxed twice-once when the corporation itself gets taxed and a second time
when the dividends are taxed.

Sol
Proprietorship
Documents
Needed to
Start Business

None, may need

for license

Ease of
Termination

Ease to
Termination

Length of life

Death of Owner

PARTERSGIPS
General
Limited
Partnership
Partnership

Conventional
Corporation

Partnership
Agreement
Oral or
Written
May be hard

Written
Partnership
agreement

Articles of
Incorporation
bylaws

Same as
General

Hard and
Expensive

Death or
withdrawal

Same as
General

CORPORATIONS
SLimited Liability
Corporation
Corporation
Articles of
Incorporation
Bylaws , must
meet criteria
Same As
Conventional

No eligibility
requirements
Only Articles of
organization
May be difficult

Perpetual life

Same As
Conventional

Varies to dates in
articles of
organization
Can't Sell
Stock.

Transfer of
Ownership

Can be Sold

Must have other Same as

partner
General
agreement

Easy , Just sell

stock.

Can sell stock

But with
restrictions

Financial
Resources

Owner's
capital

Partner's
capital

Same as
General

More money to
start

Same As
Conventional

Unlimited
Liability
Taxed as personal
income

Unlimited
Liability
Taxed as
personal income

limited
Liability
Same as
General

limited
Liability
Corporate
Double Taxation

limited
limited
Liability
Liability
Taxed as
Varies.
personal income

All areas by
Owner

Partners share
management

Can't
participate

Separate from
ownership

Same As
Conventional

Varies.

Fewer and lower

Fewer and lower Fewer and

lower

Better

Better

Varies.

Risk of losses
Taxes
Management
Responsibility
Employee
Benefits

Same as
General

SECTION (3) : FRANCHISES AND COOPERATIVES

Alternatives to start your business (not from scratch)
Section Outline:A. Franchise
B. Buying an Existing Business
C. Cooperatives

A. Franchise
Franchise :- A business that share a brand name but hasn't central
management (the owner of each franchise store is responsible for his or her
own business(.
A Franchise is different from a Chain store
Chain store :- A business that has central management (all stores are run by
the same people) and shares a brand.
Company stores :- A store owned by a chain that owns and franchises stores.
Hint :-A franchise is not a legal form of business but rather a type of business.
The advantages:a- Marketing and management assistance.
b- Franchiser provide intensive training.
c- Off financial assistance.
d- Still enjoy the benefits of being a sole proprietor.
e- A lower failure rate.
The disadvantages:a- Large start up costs.
b- Franchises must share the profit.
c- Management of franchisor
Have very tight restrictions on things.
Bad publicity experiences.
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d- Other coattail effects

Cannibalization
Bad services

B. Buying an existing business.

C. Cooperative
Cooperative: - A business owned and controlled by the people who use
It-producers, consumers, or workers with similar needs who pool their
resources for mutual gain.

SECTION (2): CORPORATE EXPANSION

Corporate expansion
Section Outline:A. Merger
B. Types of Buyouts.

A. Merger
Merger :- The result of two firms forming one company.
Types of corporate mergers:-

A- Vertical

B- Horizontal

The joining of two firms

involved in
different stages of
related business
(industries) .
A bicycle & bike
wheels companies.
Soft drink &
Sweetener
companies.

Joins two firms in the

same industry and
allows them to diversify
or expand their
products.
A bicycle & Tricycle
companies.
A bicycle & Tricycle
companies.

C- Conglomerate
Unites firms in
completely unrelated
industries

A bicycle & Restaurant

companies.
A bicycle & Snack food
companies.

Hostile takeover :- Attempts by the bidder to acquire a firm against the

interest of the latter's management.
Acquisition:- One company's purchase of the property and obligations
of another company.

B. Types of buyouts
) (,
a- Leveraged buyout (LBO) :- An attempt by employees, management, or a
group of investors to purchase an organization primarily through borrowing.
b- Management buyout :- When employees of the company get together to
purchase the business.
Hint:- The majority of the time, a management buyout will also be aLBO.

SECTION (2): GETTING STARTED IN YOUR OWN BUSINESS

Section Outline:The five main areas of focus when starting a small business :1. Planning
2. Financing
3. Knowing Your Customer (Marketing).
4. Managing Your Employees .
5. Record Keeping.
The five main areas of focus when starting a small business :-

1. Planning the business :Business planning :- Detailed written statement that describes the nature of
the business, the target market, the advantages the business will have in
relation to competition, and the resources and qualifications of the owner)s(.
Intrapreneuring :- The process of continuing to innovate a small business.
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2. Financing :- Several potential sources of capital :Venture capitalists :- A company that has money to invest in small and large
businesses and in return for its investment will generally take a stake in
business.
Angel investors :- Individuals, usually wealthy, who invest their own money in
a business for a share of the company.
Small business administration (SBA( :-U.S. government agency that advises
and assists small businesses by providing management training and
financial advice and loans.

3. knowing your customer (marketing) :Market :-Consists of people with unsatisfied wants and needs who have both
the resources and the willingness to buy.

4. Managing your employees :5. Record keeping :-

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