EDC101 Lecture 6-8 PDF

Introduction to Entrepreneurship EDC:101 Lecture: 6-8 Instructor: MUSTAQIM MUHIB HAQUE [MQMH] Entrepreneurship Development Center East West University News of the day Around 8 lakh graduates unemployed...

Introduction to Entrepreneurship EDC:101 Lecture: 6-8 Instructor: MUSTAQIM MUHIB HAQUE [MQMH] Entrepreneurship Development Center East West University News of the day Around 8 lakh graduates unemployed Source: The Daily Star Link to article: https://www.thedailystar.net/business/economy/news/unemployed-graduates-double-8-lakh-5yrs-3453956 Basic Forms of Business Ownership Three Major Forms of Business Ownership Sole Proprietorship Partnership Corporation Basic Forms of Business Ownership Sole proprietorship: A business that is owned, and usually managed, by one person. Advantages of Sole Proprietorship Ease of starting and ending the business Being your own boss Pride of ownership Leaving a legacy Retention of Company Profits No Special taxes Disadvantages of Sole Proprietorship Unlimited Liability Limited Financial Resources Management Difficulties Overwhelming Time Commitment Few Fringe Benefits Limited Growth Limited Life Span The procedure for starting a Proprietorship in Bangladesh Choose a Name for the business in Bangladesh Rent a commercial space for starting the business Fill out the trade license application form from your local government/city corporation/union etc. Apply and obtain a trade license Apply for e-tin certificate Open a Bank Account in the name of the business Partnerships Partnership: A legal form of business with two or more owners. Types of Partnerships General partnership: A partnership in which all owners share in operating the business and in assuming liability for the business’s debts. 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 does not have any management responsibility or liability for losses beyond the investment. Limited liability: The responsibility of a business’s owners for losses only up to the amount they invest; limited partners and shareholders (stockholders) have limited liability. Advantages of Partnerships More Financial Resources Shared Management and pooled/complementary skills and knowledge Longer Survival No Special Taxes Disadvantages of Partnerships Unlimited Liability- general partner Division of Profits Disagreements among Partners Difficulty of Termination Corporations A corporation is a legal entity that is separate and distinct from its owners. Corporations possess many of the same legal rights and responsibilities as individuals. Corporations are typically owned by many individuals and organizations who own shares of the business, called stock (thus, corporate owners are often called shareholders or stockholders). Stockholders can buy, sell, give or receive as gifts, or inherit their shares of stock. Corporations [continued] Stock: shares of a corporation that may be bought or sold. Usually of two types: 1. Common Stock (voting privileges) 2. Preferred Stock (no voting rights, dividends paid first) Dividends: profits of a corporation that are distributed in the form of cash payments to stockholders. Board of Directors: The governing body of the corporation, elected by stockholders and appoint corporate officers Advantages of Corporations Limited Liability Ability to raise more money for investment Size Perpetual life Ease of Ownership Change Ease of attracting talented employees Separation of ownership from management Disadvantages of Corporations Initial cost Extensive Paperwork Double Taxation Size Difficulty of Termination Possible Conflict with Stockholders and Board of Directors Private Limited Company & Public Limited Company Open (public) corporation or Public Limited Company: A corporation whose stock is bought and sold on stock exchanges and can be purchased by any individual. Closed (private) corporation or Private Limited Company: A corporation whose stock is owned by relatively few people and is not sold to the general public A private ltd co have PVT. LTD after it’s name, whereas public limited company will have LTD after its name Minimum no. of directors required in Pvt Ltd co is 2 whereas, in public limited its 3 Minimum no. of members required to incorporate a PVT LTD is 2 whereas, in Public Limited is 7 Private Limited Company & Public Limited Company [continued] A PVT LTD can have maximum 50 members, whereas the maximum no. of members in Public limited co. can be unlimited A PVT LTD cannot invite public to subscribe for its shares whereas a public limited company can invite public to subscribe for its shares To initiate business, a public Ltd. Company is in need for a certificate of commencement of business after its incorporation, on the other hand a private Ltd. Company can start business right after its incorporation. The Corporate Hierarchy HOW OWNERS AFFECT MANAGEMENT Owners have an influence on how a business is managed by electing a board of directors. The board hires the top officers (and fires them if necessary). It also sets the pay for those officers. The officers then select managers and employees with the help of the human resources department.  Types of Business Activities ❖ Manufacturing Business: A manufacturing business is one that converts raw material(s) into finished product(s) to meet the demands of the customer. In this form of business, the finished product can be directly sold to the customer. Example: Tamim has a factory that produces purified packaged drinking water.  Types of Business Activities ❖ Trading Business: A trading business does not manufacture a good or product but only facilitates the act of bringing the finished goods from the manufacturing unit to the buyer or customer (who is ready to pay for the produced good). Example: Tamanna Pharmacy sells medicines produced or manufactured by different pharmaceutical companies.  Types of Business Activities ❖ Service Business: A service business provides a skilled service, personal labour, or expertise instead of a physical product. This includes hairstylists, accountants, painters, doctors, banks and many more examples. These services exist to help people who don't have the time, knowledge, or skills to complete the tasks themselves. Mergers & Acquisitions Merger: the combination of two companies (usually corporations) to form a new company. Acquisition: the purchase of one company by another, usually by buying its stock. Google acquired Android back in 2005 for just $50 million and it is one of the best purchases Google have ever made. Types of Mergers Vertical merger: The joining of two companies involved in different stages of related businesses. Horizontal merger: The joining of two firms in the same industry that allows them to diversify or expand their products. Conglomerate merger: The joining of firms in completely unrelated industries. Types of Mergers Understanding Franchises Franchises Franchise agreement: An arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory. Franchisor: A company that develops a product concept and sells others the rights to make and sell the products. Franchise: The right to use a specific business’s name and sell its products or services in a given territory. Franchisee: A person who buys a franchise. Advantages of Franchises Management and marketing assistance. Personal ownership Nationally recognized name Financial advice and assistance Lower failure rate Disadvantages of Franchises Large start-up costs Shared profit - royalty Management regulation Coattail effects Restrictions on selling Fraudulent franchisors Questions? Thank you! 11-31