Colegio De Dagupan

School of Business and Accountancy Entrepreneurship Management

COLEGIO DE DAGUPAN
Arellano Street, Dagupan City
School of Business and Accountancy

ENTREPRENEURSHIP MANAGEMENT
COURSE OUTLINE

Course Description:

Technological innovation is increasingly the source of sustainable competitive advantage

for firms around the world. However, building an organization to successfully and repeatedly
bring technological innovations to market is a daunting managerial challenge. In this course we
focus on the practices and processes that managers use to manage innovation effectively. Over
the semester we will examine four aspects of technological innovation: exploring, executing,
leveraging and renewing innovation. Our focus will be on entrepreneurial firms (new and
established) and on firms that have been successful and unsuccessful in their innovation.

General Objectives:

By completion of the course, you will have:

1. Know some knowledge and skills towards entrepreneurial endeavour;

2. A familiarity with current topics in strategic innovation management, such as innovation
networks, idea brokering, open innovation;
3. A familiarity with innovation processes and structures such as R&D team and incentive
design, R&D portfolio management, idea generation processes, the pros and cons of various
R&D organizational structures, and the challenges of innovation in large and small firms;
4. An understanding of the strategies most effective for exploiting innovations;
5. The ability to apply these concepts directly to real world situations; and
6. Skills to identify, evaluate, and resolve a variety of issues relating to poor innovative
performance in large firms as well as entrepreneurial firms.

COURSE CONTENT

MODULE 1
- What is a small business
- Types of small business
- Characteristics of a small business
- Economic importance of small business
- Advantages and disadvantages in operating a small business

MODULE 2
- What is business ethics

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- Factors influencing ethical behaviour

- How ethical behaviour is encouraged
- Ethical issues facing entrepreneurships

MODULE 3
- The environment as a factor
- The entrepreneur’s personality
- What is personality
- Characteristics of entrepreneurs
- What motivates people to become entrepreneurs
- The entrepreneur and the manager distinguished

MODULE 4
- What is a business plan
- Purposes of a business plan
- Parts of the business plan
- Analysis of the competition
- Operations and management
- Supporting documents

MODULE 5
- Different forms of business ownership
- Advantages and disadvantages of each form
- Types of partnership
- Minor forms of business ownership

REFERENCES:

Textbook:

Medina, Roberto G. Entrepreneurship and small business management, Revised Edition.

Philippines: Rex Book store, Inc., 2015

Internet Sources:

http://www.glowimagery.com
http://www.mbda.gov/blogger/starting-business/8-traits-successful-entrepreneurs-do-you-
have-what-it-takes
https://www.linkedin.com/pulse/20140423170803-10901207-top-10-characteristics-of-
entrepreneurs

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MODULE 1
THE NATURE OF SMALL BUSINESS

OBJECTIVES:

At the end of this module, the students are expected to:

1. Know the nature of business;

2. Realize the meaning of small business;
3. Recognize the types of small business;
4. Learn the economic importance of small business;
5. know the advantages and disadvantages of operating a small business.

INTRODUCTION:

Business size is one factor that does not prevent one from engaging in
entrepreneurship. Since only a small number of people have capital large enough to start a
large enterprise, the bigger number of people with minimal resources are forced to operate on
a small-scale basis, if the decide on becoming entrepreneurs.

The premise is that is small businesses are managed properly, their chances of
becoming large enterprises are increased. Since it is well-known that large enterprises bring
certain benefits to the economy, small business management is an activity worth pursuing. But
if many small business will not develop into large businesses, their contribution is still very
significant.

WHAT IS A SMALL BUSINESS

Small business may be defined by using any of the two approaches: market share or
total assets.
Under the market share approach, small business may be defined as one which is
independently owned and operated and which is not dominant in its field of operation.
- Independently owned means ownership is by private individual, a partnership or a
corporation.
- Not dominant indicates that a small business does not control a sizable share of its
market.
 Note: when the total sales of a business firm is less than one percent of the total
demand for its product, the firm may be considered small business.

Under the total assets approach as one having total assets that fall within a certain
bracket. E.g, the Magna Carta for Small Enterprises (R.A. 6977) indicates that the firm must
have total assets valued at above P1.5 million to P15 million to be considered small business.

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The government prefers this approach because it simplifies formulation and implementation of
policy.
With the assets value bracket assigned to small business, it is inevitable that all
enterprises having total assets valued at P1.5 million and below will be classified as
“microenterprises”.
One of the disadvantages of the total assets approach is that asset values are affected
by inflation.

Kinds of business according to size

1. Public enterprise
2. Private enterprise
a. Micro Business
b. Cottage Business
c. Small Business
d. Medium Business
e. Large Business

TYPES OF SMALL BUSINESS

Small business may be classified into five types:

1. Manufacturing
- Manufacturing business is one involved in the conversion of raw materials into products
needed by society. Example: bakeries, restaurants and the like.

2. Service
- Service businesses are those that provide service in one way or another. They may be
further classified into the following:

a. Business services – provide service to other business. Example: accounting firms,

janitorial service firms, security service firms, collection agencies, and the like;
b. Personal services- provide service to the person. Examples: tutoring services,
massage parlors, voice lesson, among others;
c. Repair services – provide repair services to owners of various machinery and
appliances. Example: auto repair shops, watch repair shops, plumbing services, and
others;
d. Entertainment an recreation – includes movie houses, resorts, billiard pool centers,
and the like;
e. Hotels and motels; and
f. Education services – include Montessori schools for children, high school,
correspondence schools, among others.

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3. Wholesaling
- It refers to the activities of persons or establishments which sell to retailers and other
merchants, and/or to industrial, institutional, and commercial users, but who do not sell
in large amounts to final consumers. Examples: soft drinks wholesalers in local areas,
dealers of supplies and office equipment, grains wholesalers, and he like.

4. Retailing
- Covers all activities involved in the sale of goods and/or services to the final consumers.
Examples: retail drugstores, fast food shops, appliance stores, and others.

5. General Construction Firms

- Are those engaged in hr construction of buildings whether for private individuals or
firms, or for the government.

CHARACTERISTICS OF SMALL BUSINESS

Small businesses have their own distinctive characteristics. They are the ff:

1. Independent Management-the owner is also the manager

2. Small Capital Requirement – small business requires only small capital and this can be
supplied by a single or a few individuals.
3. Mostly local operation – small business usually operates in a certain locality although
there are cases when the market is not confined to a local area.

Economic Importance of Small Business

1. Economic Growth
Small businesses contribute to local economies by bringing growth and innovation to the
community in which the business is established. Small businesses also help stimulate economic
growth by providing employment opportunities to people who may not be employable by larger
corporations. Small businesses tend to attract talent who invent new products or implement
new solutions for existing ideas. Larger businesses also often benefit from small businesses
within the same local community, as many large corporations depend on small businesses for
the completion of various business functions through outsourcing.

Small businesses play an important role in the development of our economy. They
assume the following functions:
a. Providers of economic opportunities for entrepreneurs
b. Providers of product and services to consumers
c. Suppliers of products and services to other businesses
d. Distributors of products and services of other businesses
e. Supporters of government
f. Providers of employment

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2. Adaptability to Changing Climates

Many small businesses also possess the ability to respond and adapt quickly to changing
economic climates. This is due to the fact that small businesses are often very customer-
oriented. Many local customers will remain loyal to their favorite small businesses in the midst
of an economic crisis. This loyalty means that small businesses are often able to stay afloat
during tough times, which can further strengthen local economies. Small businesses also
accumulate less revenue than larger corporations, meaning they may have less to lose in times
of economic crisis.

3. Schools and Local Government Offices

When consumers patronize local small businesses, they are essentially giving money
back to their local community. A thriving local business will generate high levels of revenue,
which means that the business will pay higher taxes, including local taxes. This money is then
used for local police and fire departments as well as schools.

4. Future Growth
Small businesses do not always stay small. Large corporations, such as Nike and Ben
and Jerry’s, started off as small businesses that grew to become major players in the national
and international marketplace. Many computer-industry leaders began as “tinkerers,” working
on hand-assembled machines out of their garages. Microsoft is a prime example of how a small
business idea can change the world. Small businesses that grow into large businesses often
remain in the community in which the business was first established. Having a large corporation
headquartered in a community can further help provide employment and stimulate the local
economy.

Advantages of Operating a Small Business

An individual has various options to improve his economic lot. They are the following:
1. Be an employee;
2. Be a professional;
3. Be a small business operator (SBO).

An employee enjoys a fixed working schedule like 8:00 A.M to 5:00 P.M. The pay he
receives, however, is limited and dependent to a large extent on industry norms and
financial capability of the company.

A professional may generate a higher income through the effective practice of his
profession.

The first two options, however, can only be considered depending on certain conditions.
Finding a job is not an easy task. The rate of rejection for job applicants, especially in the

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Philippines, is just too high. In reality, there are too many people who cannot exercise this
option.

Entering a certain position is also not an easy task. First, one must undergo long years
of study, and second, one must pas a rigorous entrance requirement like passing the board
examination. There are too man people who cannot exercise this option.

The last option is small business operation. Although entrance requirements are not as
difficult as the first two options, it does not mean this option is easier to put into practice. A
small business operator keeps long working hours and absorbs whatever damages that
happen as a result of his faulty decision-making. However, he is afforded the following
benefits:
a. Opportunity to gain control over his own destiny
- The prospective small business owner can choose from several business opportunities
that he would like to take advantage of.
b. Opportunity to reach full potential
c. Opportunity to reach Unlimited profits
d. Opportunity to make a contribution to Society and Receive Recognition for his efforts
- Entrepreneurs who make innovative products available to the public are recognized
properly by society.

Other advantages of operating a small business:

1) You are your own boss 
2) You work hard and enjoy the fruits of the hard work 
3) You'll never work harder for someone else as you will for yourself 
4) Gratification of accomplishing success and watching the biz grow 
5) Leading others 
6) Forming strong relationships with customers/clients 
7) A successful business can provide significant financial reward. 
8) You learn and acquire significant skills of marketing, accounting, negotiating and selling
which are sought after skills in the workforce.

Disadvantages of Operating a Small Business

1) Risk of failure 
2) No one to save you or bail you out from your own bad choices 
3) Long, long hours 
4) No vacations for years, no weekends either/time commitment
People often start businesses so that they’ll have more time to spend with their families.
Unfortunately, running a business is extremely time-consuming. In theory, you have the
freedom to take time off, but in reality, you may not be able to get away.
5) No group health insurance 

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6) Strict record keeping and attention to detail are a MUST 

7) Risk of being sued 
8) Significant reward, but significant risk 
9) Most businesses fail in their first years
10) Stress.
As a business owner, you are the business. There’s a bewildering array of things to
worry about—competition, employees, bills, equipment breakdowns, customer problems. As
the owner, you’re also responsible for the well-being of your employees.
11) Undesirable duties.
When you start up, you’ll undoubtedly be responsible for either doing or overseeing just
about everything that needs to be done. You can get bogged down in detail work that you
don’t enjoy. As a business owner, you’ll probably have to perform some unpleasant tasks,
like firing people.

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Module Exercises

I.Fill in the blanks

1) Small business may be defined through the market share approach or the ____
approach.
2) A ____ is a business involved in the conversation of raw materials into products needed
by society.
3) ____ are types of service business that provide service to the person.
4) ____ refers to all activities involved in the sale of goods or services to the final
consumer.
5) To improve his economic standing, an individual could choose to be an employee, a
professional, or ____.
6) If the small business succeeds, all profits accrue to the ____.
7) The income of the employee is certain while that of the SBO is ____.
8) The SBO is afforded the opportunity to gain control over his ____.
9) Small business is characterized by independent management which means the ____ is
also the manager.
10) ____ provide service to other business.
11) ____ provide service to owners of various machinery and appliances
12) _____ refers to the activities of persons or establishments which sell to retailers and
other merchants, and/or to industrial, institutional, and commercial users, but who do
not sell in large amounts to final consumers.
13) ____ are those engaged in the construction of buildings whether for private individuals
or firms, or for the government.
14) ____ is one of the factor that does not prevent one from engaging in entrepreneurship.
15) The premise is that if small businesses are managed properly, their chances of
becoming large enterprise ____.

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MODULE 2

THE ETHICAL AND SOCIAL RESPONSIBILITIES OF THE ENTREPRENEUR

Objectives:
At the end of this module, the students are expected to:
1. Know the meaning of business ethics;
2. Recognize the factors affecting ethical behaviour;
3. Know how ethical behaviour is encouraged; and
4. Enumerate ethical issues facing entrepreneurships.

WHAT IS BUSINESS ETHICS

Ethics is the study of moral obligation involving the distinction between right and wrong.
As a consequence, the study of ethics paved the way for the adaption of the general rules of
conduct in society.

The rules about how entrepreneurs ought to behave are referred to as business ethics.
The ethical behaviour required of entrepreneurs is determined by the following:
1. The public;
2. Interest groups like The Society of Prevention of Cruelty to animals;
3. Business organizations; and
4. The individual’s personal morals and values.

FACTORS INFLUENCING ETHICAL BEHAVIOR

Ethical behaviour, whether by a person or a business entity, is influenced by any or a

combination of the following:

1. Situation
-circumstances vary, and the reaction of firms o individuals also vary. For instance, a
firm that behaves ethically during prosperous times may act unethically in times of
financial hardships.
2. Reward system
3. Individual differences
-people are different from one another and hat includes differences in reacting to
specific situations.
4. Other factors

HOW ETHICAL BEHAVIOR IS ENCOURAGED

If the entrepreneur believes that business success requires good ethical behaviour, his
next concern would be to encourage his people to adapt good ethical behaviour.

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There are certain ways of encouraging ethical behaviour among employees. These are
the following:

1. Adaption of the code of ethics

The code of ethics is a formal document indicating the entrepreneurship’s adapted
principles of appropriate behaviour. It is very useful to the firm espousing ethical
behaviour. It serves as a basic reference for employees who make big or small
decisions.
2. Rewards and punishment concerning ethical behaviour
A code of ethics is sufficient for some people if ethical behaviour is required. For
many people, however, this may not be enough to motivate them to act ethically. If the
entrepreneurship wants to have some measure of control over the behaviour of its
personnel, a system of reward and punishment must be instituted.
Punishment could take the form of dismissal, demotion, suspension, or
reprimand. Rewards may be given in the form of cash, gifts, promotion, or citation.

3. Internal program for resolving conflicts

It is important for entrepreneurs to adapt a program of resolving conflicts. For
instance, a subordinate may appeal to his superior ‘s decision without exposing
him to the concerned superior. Later, a meeting between management and the
subordinate is arranged.

4. Creation of ethics review committee

This committee is usually composed of company employees a well as some who
are not employed by the company. These persons have undergone special
training in ethics. The committee provides advice to the entrepreneur and his
staff concerning sensitive ethical issues.

5. Provision of training in ethics for employees

Ethics training is more appropriate for persons occupying sensitive positions i
purchasing, waste disposal, personnel, research and development, sales, and
manufacturing.

6. Top management support

It is very difficult for any program to succeed without sufficient support from top
management.

ETHICAL ISSUES FACING ENTREPRENEURSHIP

Entrepreneurships face ethical questions on a daily basis. These spring from the
following relationships.

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1. Between the company and the customers;

2. Between the company and its personnel and employees;
3. Between the company and its business associates; and
4. Between the company and the investors of financial community.

Relations with customers

Entrepreneurs are expected to by society to treat their customers fairly and not to act in
ways that will be harmful to them. Entrepreneurs should provide support for consumer rights
which are as follows:
a. The right to be safe;
b. The right to be informed;
c. The right to choose;
d. The right to be heard.

Relations with Personnel and Employees

Good ethical conduct requires entrepreneurs to be aware of their responsibilities to
employees. These are he following:
a. Workplace safety;
b. Quality of life issues;
c. avoiding discrimination; and
d. preventing sexual harassment.
- sexual harassment refers to unwelcome sexual advances, requests for sexual favors,
and other verbal or physical contact of a sexual nature. Entrepreneurs have the moral
responsibility of keeping the workplace free from sexual harassment and where
everybody is treated fairly.

In preventing sexual harassment, the entrepreneur needs to do the following:

 issue a specific policy statement prohibiting sexual harassment;
 develop complaint procedure for employees to follow;
 create a work environment that encourages sexually harasses employees to report their
experiences;
 establish a committee to investigate sexual harassment claims; and
 take disciplinary actions against harasser.

Relations with Business Associates

Entrepreneurships operate in conjunction with the efforts of suppliers, agents, and
various types of middlemen. In the course of business transactions between the players
mentioned and the firms, some ethical questions may come into fore. A supplier who badly
needs a contract, for instance may attempt to bribe the company’s purchasing officer.
The practice like the one stated above are unethical and must not be allowed to happen
in a company that upholds good ethical conduct.

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Relations with investors and the financial community

The country’s financial system survives partly because investors and other players have
placed a certain degree of trust in firms they deal with. The degree of trust of trust is
maintained at high level if the investors and the financial community feel that business firms
practice good business ethics, especially if they think that their investments are well protected.
If that is so, the declared level of investment is maintained.

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MODULE EXERCISES

I.Fill in the blanks before each item in column A with the corresponding letters in column B.

A B
______1. Ethics A. provision of training in ethics for
______2. Business ethics employees
______3. Adherence to ethical standards B. must be supported by top
______4. A factor influencing ethical management
behaviour C. most probable victim when ethical
______5. Way of encouraging ethical abuses are committed
behaviour D. the rule about how entrepreneurs
_____6. For a code of ethics to be effective ought to behave
_____7. Customers E. right to be safe
_____8. Consumer right which the F. individual differences
entrepreneur must support G. to make huge profits
_____9. Consumer’s right to choose is violated H. establishes trust between buyers and
by some traders sellers
_____10. An unethical conduct I. a supplier’s attempt to bribe a
company’s purchasing officer.
J. The study of moral obligation involving
the distinction between right and
wrong.

II.FILL IN THE BLANKS

1) ____ is the study of moral obligation involving the distinction between right and wrong.
2) ____ refers to the rules about how entrepreneurs ought to behave.
3) ____ is a formal document indicating the entrepreneur’s adapted principles of
behaviour.
4) The dates of manufacture and expiry on labels are intended to ____.
5) The right to be heard is one of the ____ that the entrepreneur must support.

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MODULE 3
ENTREPRENEURIAL PERSONALITY

Objectives:
At the end of this module, the students are expected to:
1) know the two complementary factors that determine success or failure in an
entrepreneurship;
2) know the meaning of personality;
3) be familiarized with the characteristics of Entrepreneurs;
4) recognize the things that motivate people to become entrepreneurs; and
5) determine the difference between manager and entrepreneur.

INTRODUCTION:

According to Jason Bowser, there are 8 traits of a successful entrepreneur, namely:

1. Strong leadership qualities

- A leader is someone who values the goal over any unpleasantness the work it takes to get
there may bring. But a leader is more than just tenacious. A leader has strong communication
skills and the ability to amass a team of people toward a common goal in a way that the entire
team is motivated and works effectively to get there as a team. A leader earns the trust and
respect of his team by demonstrating postive work qualities and confidence, then fostering an
environment that proliferates these values throught the team. A leader who nobody will follow
is not a leader of anything at all.

2. Highly self-motivated
-. Nobody makes progress by sitting back and waiting for it to find them. Successful people go
out into the world and invoke change throught their actions. Typically, leaders enjoy challenges
and will work tirelessly to solve problems that confront them. They adapt well to changing
situations without unraveling and are typically expert of helping their teams change with them
by motivating them toward new goals and opportunities. Often you will learn that successful
entrepreneurs are driven by a more complete vision or goal than simply the task at hand and
able to think on a more universal level in that regard. They are also often very passionate about
their ideas that drive toward these ultimate goals and are notoriously difficult to steer off the
course.

3. Strong sense of basic ethics and integrity

-You will find that successful, sustainable business people maintain the highest standards of
integrity becauase, at the end of the day, if you cannot prove yourself a credible business
person and nobody will do business with you, you are out of business. With importance in
working with clients or leading a team, effective leaders admit to any error made and offer
solutions to correct rather than lie about, blame others for, or dwell on the problem itself.

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4. Willingness to fail
-Successful entrepreneurs are risk takers who have all gotten over one very significant hurdle: 
they are not afraid of failure.  That's not to say that they rush in with reckless abandon.  In
fact, entrepreneurs are often successful because they are calculating and able to make the best
decisions in even the worst of cases.  However, they also accept that, even if they make the
best decision possible, things don't always go according to plan and may fail anyhow. If you've
heard the old adage, "nothing ventured, nothing gained," that's exactly what it's saying: do not
be afraid to fail, put it out there and give it your best shot.  Again, there's not one successful
entrepreneur out there sitting on his couch asking, "what if?"

5. Serial innovators
-Entrepreneurs are almost defined by their drive to constantly develop new ideas and improve
on existing processes. In fact, that's how most of them got into business in the first place.
Successful people welcome change and often depend on it to improve their effectiveness as
leaders and ultimately the success of their businesses as many business concepts rely on
improving products, services and processes in order to win business.

6. Know what you don't know

-While successful entrepreneurs are typically strong personalities overall, the best have learned
that there's always a lesson to be learned. They are rarely afraid to ask questions when it
means the answers will provide them insight they can then leverage to effect. Successful
entrepreneurs are confident, but not egotistical to the point that their bull-headedness is a
weakness that continually prohibits them from seeing a bigger picture and ultimately making
the best decisions for the business.

7. Competitive spirit
-Entrepreneurs enjoy a challenge and they like to win.  They would have to since starting a
business is pretty much one of the biggest challenges a person can take on in their lifetime. In
business it's a constant war with competition to win business and grow market share. It's also a
personal challenge to use all of this to focus inward and grow a business from nothing into a
powerhouse that either makes a lot of money or is so effective that it is sold or acquired for a
profit as well.

8. Understand the value of a strong peer network

-In almost every case, entrepreneurs never get to success alone. The best understand it takes a
network of contacts, business partners, financial partners, peers and resources to succeed.
Effective people nurture these relationships and surround themselves with people who can help
make them more effective. Any good leader is only as good as those who support him.

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The question is, DO YOU HAVE WHAT IT TAKES?

There are two complementary factors that determine success and failure in an
entrepreneurship. These factors are:
1. environment; and
2. Personality of the entrepreneur.

THE ENVIRONMENT AS FACTOR

An entrepreneur will survive and grow in an environment that is friendly or akin to it.
Nature provides us with examples of what happens to entities living in certain environments.
For instance, giant clams thrive in the ocean, nut not in the river. These are so because giant
clams were designed by nature to survive in saltwater, and freshwater river will be hostile to it
because it is not its natural habitat.

In the same light, entrepreneurships will survive and grow only in economic
environments of free enterprise. Full blooming entrepreneurships cannot be expected to flourish
in economies that are full supportive of free enterprise.

In terms of support to entrepreneurships, economic environments differ from place to

place. To facilitate discussion, economic environments may be classified as follows:
1. Fully supportive of entrepreneurships;
2. Moderately supportive of entrepreneurships; and
3. Not supportive of entrepreneurships.

Economies that fully support entrepreneurships make it easy for entrepreneurs to succeed.
The exact opposite may be expected in economies that are not supportive of
entrepreneurships.

THE ENTREPRENEUR’S PERSONALITY

What is personality?
Personality refers to individual differences in characteristic patterns of thinking, feeling
and behaving. The study of personality focuses on two broad areas: One is understanding
individual differences in particular personality characteristics, such as sociability or irritability.
The other is understanding how the various parts of a person come together as a whole.

Psychologists have made great advances in research about personality. An interesting study is
that one made by Holland. His proposal indicates six personality types. They are as follows:
1. Realistic types;
2. Investigative type;
3. artistic type;

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4. social type;
5. enterprising type; and
6. conventional type.

A brief description of the foregoing personality types is presented in figure 1.

Figure 1: A Brief Description of Holland’s Personality Types

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CHARACTERISTICS OF ENTREPRENEURS

Successful entrepreneurs possess certain characteristics that are unique and different
from those having other occupations. Based on research by experts, the following traits are
considered vital to a successful career in entrepreneurship:

1. drive
- success in entrepreneurship becomes possible when the entrepreneur is self-motivated
enough to pursue his chosen course without relenting even in the face of adversity.
- Drive is a person’s motivation toward a task. It comprises of such personality traits as
responsibility, vigour, initiative, persistence and ambition. An entrepreneur must exert
considerable effort in establishing and managing his business. Those entrepreneurs who
work hard in planning, organising, coordinating and controlling their businesses are
more likely to have a successful business than the entrepreneur who is lost and
haphazard

2. thinking ability
- a man with superior thinking ability can see through the maze of information brought
before him. That ability is an ingredient of successful entrepreneurship.

3. human relations ability

- personality factors such as emotional stability, personal relations, sociability,
consideration and tactfulness are important contributors to entrepreneur’s success. One
of the most important facets of human relations ability is one’s ability to “put himself in
someone else’s place and to know how the other person feels. This is the ability to
practice empathy.
- The entrepreneur must have good relations with his employees, customers etc. He must
be aware of the needs and motivations of customers if he is to adequately train his
employees to maintain good customer relations.

4. ability to communicate
- An entrepreneur must possess the quality of communicating effectively in written and
oral communications. Good communication also means that both the sender and the
receiver understand and are being understood.

5. technical knowledge
- Success of an entrepreneur depends largely upon his ability to adopt latest technology.
Technical knowledge implies the ability to devise and use new and better ways of
producing and marketing goods and services. An entrepreneur must have a reasonable
level of technical knowledge. Technical knowledge is the ability that people can acquire
with hard work.

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6. reasonable risk-taker
- A risk situation occurs when one is required to make a choice between two or more
alternatives whose potential outcomes are not known and must be subjectively
evaluated. A risk situation involves potential gain or loss. The greater the possible loss,
the greater is the risk involved.

7. self-confident
- It is necessary for an entrepreneur to be self-confident. He should have faith in himself,
only then he can trust others.
- In an expanded business, delegation of authority is a must and only a self-confident
entrepreneur can delegate his authority. He can seek cooperation of his staff and
inculcate a sense of team work in them.

8. goal setter
- A thousand-mile Journey begins with but a simple step . The decision to become an
entrepreneur is the first step followed by the choice of the product. As the business
venture is undertaken, need for planning arises. It is the rigor and thoroughness of the
business plan which could be behind the successful entrepreneur throughout his
venture’s life.

9. accountable
- Successful entrepreneurs are accountable and responsible for the failure or success of
business. They shoulder the responsibility of piloting the business through its trying
times. If they succeed, it becomes a plus to them but if they fail, they will be held
responsible.

10. innovative
-innovation may be the only way the entrepreneur can achieve the following:
a. penetrate the market
b. improve employee turnover
c. reduce manufacturing cost; and
d. improve collection rate.
-Walt Disney is an example of a highly innovative entrepreneur. He developed and
incorporated new technology and ideas to draw customers. Some of his
accomplishments in entrepreneurship consist of Mike Mouse, Disneyland, and Walt
Disney Movies.

What Motivates People to Become Entrepreneurs

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Not everyone desires to be entrepreneur. Those who do, however, are motivated by any
or all of the following:

1) desire to be one’s own boss;

2) desire for financial rewards;
3) desire to create one’s own job security; and
4) desire to improve one’s quality of life.

The Entrepreneur and the Manager Distinguished

The terms “entrepreneur” and “manager” are sometimes used interchangeably.

Although both jobs are useful to the economy, each performs distinct functions.

A major distinction between the entrepreneur and the manager is about orientation. The
entrepreneur (also alternatively called promoter) feels confident of his ability to seize a business
opportunity regardless of the resources under his current control. The manager (also
alternatively called the trustee) emphasizes the efficient utilization of resources.

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MODULE EXERCISES

I.Fill in the blanks.

1) Entrepreneurship will survive and grow in an economic environment that is __ _ and

akin to it.
2) Every person has a personality that is ____ and different from others.
3) ______ refers to the pattern of characteristics that distinguishes one person from
another.
4) Success in entrepreneurship becomes possible when the entrepreneur is ______ enough
to pursue his chosen course without relenting even in the face of adversity.
5) A man with superior ______ can see through the maze of information brought before
him
6) The ability to ______ and be understood makes it easier for the entrepreneur to
transact business with the stakeholders.
7) Three types of person will determine the survival and growth of the firm: 1) the
customer, 2) the employee, and 3) ______ with interest in the firm.
8) When a person starts a new venture, he has already begun to assume the risk of
__________.
9) A person cannot achieve much unless he has sufficient _______ in himself.
10) Entrepreneur is also called _________.

II.Enumeration

1) Holland’s six personality types:

2) What motivates people to become entrepreneurs

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MODULE 4
THE BUSINESS PLAN

OBJECTIVES:

At the end of the module, the students are expected to:

1) know the meaning of business plan;
2) appreciate the purposes of business plan;
3) determine the different parts of the business plan;

INTRODUCTION

The number of problems that may be felt when the small business is already in
operation may just overwhelm the entrepreneur. If he is good enough, he may be able to
handle them successfully if they happen one at a time. However, it will be very difficult for him
if problems occur simultaneously.

The entrepreneur is not entirely hopeless, however. Effective business planning is used
to eliminate this difficulty. This alone justifies engagement in business planning.

Planning may be viewed as a systematic approach to achieve certain objectives. It is an

attempt to eliminate mistakes inherent to “on-the-spot” decisions. Planning provides the
decision-maker with ample-time to consider relevant variables before a decision is reached. This
is important because the resources required must be identified as early as possible to preclude
shortages arising from procurement activities.

Planning is useful not only to big business. Small business may also reap the benefits of
planning if it is undertaken even on a small scale basis.

WHAT IS A BUSINESS PLAN

The business plan is a document that helps the small business owner determine what
resources are needed to achieve the objectives of the firm, and provides a standard against
which to evaluate results.

The business plan is a sort of a business blueprint and it keeps the entrepreneur on the
right track. It gives a sense of purpose to the business. It also provides guidance, influence and
leadership, as well as communicating ideas about goals and the means of achieving them to
partners, associates, employees, and others.

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PURPOSES OF A BUSINESS PLAN

A business plan is written for two main purposes. They are the following:
1) to serve as management guide during the lifetime of the business; and
2) to fulfil the requirement for securing lenders and investors.

PARTS OF THE BUSINESS PLAN

The contents of the business plan will depend upon the purpose. Usually, however, they
contain the following:

1) title page and content

the business plan must be easily identifiable through a cover page with a listing of the
following:
a. the name of the business;
b. the name/s of the proponents;
c. address;
d. telephone number;
e. e-mail and website address;
f. the date; and
g. the name of the person who prepared the business plan.
The next page should provide a table of contents so he readers can easily find the
information they need

2) Executive Summary

the executive summary is a portion of the business plan that summarizes the plan and
states the objectives of the business. It is prepared after the business plan is written. If
the entrepreneur is intending to borrow money or is seeking capital from investors, the
following must be indicated:

1) The capital needs of the business

2) How the money will be used
3) What benefits will be derived by the business from the loan or investment; and
4) In case of loan, how it will be repaid with interest, and in the case of outside
investment, how profits will be generated.

3) Description of the Business

This particular portion of the business plan is very useful to the entrepreneur, as well as
prospective investors and lenders.
This is divided into two parts:

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a. A short explanation of the industry; and

b. A description of the business.
In describing the industry, it is important to present the current situation and the
outlook of the future. The sources of information must be indicated.

Statements about the following will be useful in describing the business:

1) The industry sector where the business falls into;
2) Whether the business is new or established;
3) The ownership status of the business (sole proprietor, partnership, corporation);
4) Information on who the customers are;
5) Information on the size of the market; and
6) Information on how the product or service is distributed.

4) Description of the product or service

The product must be described clearly in the plan. To achieve this, the following must
be presented:
a. The important features of the product or service
b. A detailed description of how the product is used
c. What makes the product or service different from others available in the market.
- The objective of product or service description is to show that the firm has competitive
edge over the others. It is important as well to explain hat the business will be
profitable. Factors that will make the business successful must be described. Some of
these positive factors are:
1) Superior organization of the business;
2) Latest equipment hat are currently used by the company;
3) Superior location of the company;
4) Fair price of the product or service; and
5) Superior customer service offered by the company.

5) Market Strategies

Market strategies refer to what the entrepreneur plan to do to achieve the market
objective of the firm. These strategies are formulated after undertaking market
research.

Market strategies consist of the following:

a. Definition of the market;
b. Determination of the market share;
c. positioning strategy;
d. pricing strategy;
e. distribution strategy; and
f. Promotion strategy.

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 Definition of the market. The objective of the market definition is to determine which
part of the total potential market will be served by the firm.

 Determination of the market share. The business plan will be more useful to the
reader, especially lenders and investors, if he projected market share of the firm is
presented.

To determine the firm’s market share, the following steps may be used:
- Determine the number of prospects in the target market
- Determine the number of times the product or service is purchased by the target
market;
- Figure out the potential annual purchase; and
- Determine the percentage of the potential annual purchase that the firm can attain.

 Positioning strategy. Positioning refers to how the firm differentiate it product or

service from those of the competitors and serving a niche.

Positioning strategy is one where the firm identifies a target market segment and
develops a strategy mix to address the desires of that segment.

Before adapting a positioning strategy, the following questions must be considered:

1) What does the customer really want to buy from the firm?
2) How is the product or service different from the competitors?
3) What makes the product or service unique?

 Pricing strategy. How the firm prices its product or service is a very important
component of the business plan. In determining the right pricing, the following must be
considered:
- Customer’s perception of value in the firm’s kind of business;
- Costs involved such as, overhead, storage, financing, production, and distribution; and
- Profit objectives of the firm.

The firm’s price may be established through any of the following methods:

- Cost plus pricing – covers all the costs, variable and fixed, plus an extra increment to
deliver profit.
- Demand pricing – is a method of pricing where the firm sets price based on buyer
desires. The range acceptable to the target market is determined.
- Competitive pricing – calls for price setting on the basis of prices charged by competitors
- Markup pricing – is a form of cost-oriented pricing in which the firm sets prices by
adding per-unit merchandise costs, operating expenses and desired profit.

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 Distribution Strategy. Distribution refers to the process of moving goods and services
from the firm to the buyers. The distribution channel that will be adapted must provide a
strategic advantage to the firm.

Common distribution channels are the following:

- Direct sales – is the most effective channel if the plant is to move goods directly to the
ultimate users.

- Original equipment manufacturer sales- involves selling a manufactured product to

another manufacturer who, in turn, incorporates the same to his product and which is
later sold as a finished product to the end user.

- Manufacturer’s representatives- are wholesalers employed by one several producers and

paid on commission according to quantity sold.

- Wholesalers – are channel members that sell to retailers or other agents for further
distribution through the channel until they reach the final users.

- Brokers – are distributors who buy directly from distributors or wholesalers and sell to
retailers or end users.

- Retailers – sell directly to consumers

- Direct mails – are printed materials used in targeted campaign to consumers.

 Promotion strategy – how the company’s product or services will be promoted is an

important component of the marketing strategy. The promotion atrategy must include
the following:

1) Advertising apects:
a. Advertising budget;
b. Positioning message; and
c. First year’s media schedule.

2) Packaging – describe how the company’s products will be packaged.

3) Public relations – will be a detailed presentation of the publicity strategy of the firm.

4) Sales promotions – are means used to support the sales message like special sales,
coupons, contest, and the like.

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5) Personal sales – present the sales strategy including:

a. Pricing procedures
b. Rules on returns and adjustments;
c. Methods of sales presentations;
d. Generation of leads;
e. Policies on customer services;
f. Compensation of salesmen; and
g. Responsibilities of the salesmen.

6) Analysis of the Competition

The small business operator will find it difficult to compete if his competitors are unknown
to him. This makes necessary to make analysis of the competitors.

In competitive analysis, the following must be determined:

a. Strengths and weaknesses of the firm’s competitors;
b. Strategies that will give the firm a competitive advantage;
c. Barriers that can be developed to prevent competitors or would –be competitors from
exploiting the firm’s market; and
d. Any opportunity that can be exploited.

Note that the competitors of any business may either be or both diect or/and indirect.

7) Operations and management

How the firm will be operated on a continuing basis is an important component of the
business plan. In such, the plan must contain the following:
a. Organizational structure
b. Operating expense
c. Capital requirements; and
d. Cost of good sold.

 Organizational structure
o A well-defined and realistic organizational structure is an important element of
the business plan. Investors and lending institutions will be interested to look at
this particular aspect. Generally, they will be concerned how the firm is organized
along the following concerns:
A. Marketing (including sales, customer relations and service)
B. Production (including quality assurance)
C. Research and development
D. Management; and

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E. Human resource
 Operating expenses
In determining operating expenses, labor and overhead must be considered. The
organizational structure is very useful in providing information in the determination of
labor expenses. Overhead, which may be fixed or variable, includes the following:

- Rent;
- Advertising and sales promotion;
- Supllies;
- Utilities;
- Packaging and shipping;
- Maintenance and repair;
- Equipment and leases;
- Payroll;
- Payroll taxes and benefits;
- Bad debts;
- Professional services;
- Insurance;
- Loan payments;
- Depreciation; and
- Travel.

 Capital requirements

Capital requirements are necessary items in operating businesses. The business

plan will not be complete unless a listing of capital equipment needed to be purchased is
drawn up.

 Cost of good sold

The cost of goods of trading firms consist of products purchased for resale, while the
cost of goods of manufacturing firms refer to total expenses incurred in manufacturing the
products that are intended to be sold.

These expenses include the following:

a) Material;
b) Labor; and
c) Overhead.

In both types of business, all merchandise sold are indicated as cost of goods, and those
that are not sold are categorized as inventory.

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8) Financial data

Financiers are most intended in the financial aspects of the business plan. To satisfy this
requirement, the following statements must be presented in the business plan:
- Income statement;
- Balance sheet;
- Cash flow statement.

 Income statement
A financial statement that measures a company's financial performance over a
specific accounting period. Financial performance is assessed by giving a summary of
how the business incurs its revenues and expenses through both operating and non-
operating activities. It also shows the net profit or loss incurred over a specific
accounting period, typically over a fiscal quarter or year

Figure 4.1 sample income statement

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 Balance Sheet
A financial statement that summarizes a company's assets, liabilities and
shareholders' equity at a specific point in time. These three balance sheet segments give
investors an idea as to what the company owns and owes, as well as the amount
invested by shareholders.
The balance sheet is so-called because there is a debit entry and a credit entry
for everything (but one entry may be to the profit and loss account), so the total value
of the assets is always the same value as the total of the liabilities.

The balance sheet adheres to the following formula:

Assets = Liabilities + Shareholders' Equity

A summary of financial information about the business is contained in the balance sheet and
are broken down into three areas, namely:
1) Assets;
-fixed assets - long-term possessions
-current assets - short-term possessions
2) liabilities;
-current liabilities - what the business owes and must repay in the short term
-long-term liabilities - including owner's or shareholders' capital
3) owner’s equity

The assets. The assets portion of the baance sheet lists the assets of the firm in order of
liquidity. As such, this portion is subdivided into the following:
A. Fixed assets include:
-tangible assets - eg buildings, land, machinery, computers, fixtures and fittings -
shown at their depreciated or resale value where appropriate
-intangible assets - eg goodwill, intellectual property rights (such as patents, trade
marks and website domain names) and long-term investments
B. Current assets are short-term assets whose value can fluctuate from day to day and
can include:
- stock
- work in progress
- money owed by customers
- cash in hand or at the bank
- short-term investments
- pre-payments - eg advance rents

The liabilities. The liabilities portion of the balance sheet is classified as current or long-term.

A. Current liabilities are amounts owing and due within one year. These include:
- Accounts payale/money owed to suppliers
- Accrued liabilities/short-term loans, overdrafts or other finance

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- taxes due within the year 

B. long-term liabilities
- bonds payable – are bonds due and payable over one year;
- mortgage payable – refers to loans used for the purchase of real state and is repaid for
a period of over one year; and
- notes payale – are loans represented by a written document which is payable for a
period of over one year.

The owner’s equity. This section refers to how much the owner has in the business. It
provides a useful means in evaluating the company.

Figure 4.2 sample balance sheet

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 Cash flow statement

One of the quarterly financial reports any publicly traded company is required to
disclose to the SEC and the public. The document provides aggregate data regarding
all cash inflows a company receives from both its ongoing operations and external
investment sources, as well as all cash outflows that pay for business activities and
investments during a given quarter.

The following items are listed in a cash flow statement:

a. Cash j. R and D expenses

b. Cash sales k. General and administrative
c. Receivables expenses
d. Other income l. Taxes
e. Total income m. Capital
f. Material or merchandise n. Loan payments
g. Direct labor o. Total expenses
h. Overhead p. Cash flow
i. Marketing expenses q. Cumulative cash flow
The cash flow must be carefully analyzed and a short summary must be presented in the
business plan.

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Figure 4.3 sample cash flow statements

9) Supporting Documents

The business plan would be more meaningful if supporting documents are include. The
documents usually consist of the following:

a. The owner’s resume;

b. Contract with suppliers
c. Contracts with customers or clients;
d. Letters of reference;
e. Letter of intent;
f. A copy of the firm’s lease
g. A copy of copyright or patent acquired, if applicable; and
h. Tax returns for the past three years.

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Module exercises

Multiple choice:

1. The best place to find more information on designing your own individualized plan is:

Your lawyer

Your accountant

The Public Library, industry or government "Business Plan" Web sites, or

bookstores

Business Planning Consultants

2. The primary reason to prepare a business plan before you begin is to create a tool to
deal with investors and financing sources.

True

False

3. In preparation of financial projections for your business plan, it is as important to

estimate long range sales and earnings as it is to project short-term objectives.

True

False

4. A potential investor or lender is going to look over your business plan and in his or her
mind this question will arise: Where is the tough person to make the really difficult
decisions, handle negotiations skillfully and exercise restraint? Your business

Projecting yourself in this image (assuming you're not!)

Making a point of stating that your team of consultants including your lawyer
and accountant will be employed to maintain a disciplined business approach

Facing this issue and stating it in your business plan: your business will need
tough and skillful management. Answer this need in a way that satisfies you as well
those who will be doing business with you.

5. Preparation of a business plan is optional for some small businesses.

True

False

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6. Your business plan could EXCLUDE:

All the subjects covered in sessions of this course.

Personal biographies of management.

Financial statement projections and cash flow projections.

Your marketing and expansion plans.

Your plans to build a new vacation home with your profits.

7. If your business plan includes the exploitation of an invention, and provided you do not
blunder in major decisions, your success can be most likely assured.

True

False

8. Let's assume that your business plan is based on starting a real estate related business.
This business plan session would lead you to most favorably consider:

Residential and commercial sales.

Industrial and commercial development.

Room additions and industrial construction.

Specialize in one of above.

None of the above.

9. In order to test your understanding of your market, the safest approach would be to:

Rely on your personal instinct.

Conduct a survey among your friends.

Test market your product or service.

10. To overcome the common stumbling block of not preparing a business plan, it helps to:

Complete the plan for each session as you proceed.

Have your business plan completed before proceeding.

Prepare your plan after you have completed this course.

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MODULE 5

FORMS OF BUSINESS OWNERSHIP

OBJECTIVES:
At the end of this module, the students are expected to:
1. Name the various forms of business ownership;
2. Describe the nature and characteristics of sole proprietorship;
3. Describe the nature and characteristic of partnership;
4. Describe the nature and characteristic of corporation;
5. Assess modifications of the corporate form; examine other forms of business
organization.

INTRODUCTION:

Careful thinking must be considered in determining the ownership form as each of the
various types has its own unique features, as well as advantages and disadvantages.

There are three major types of business ownership: sole proprietorship, partnership, and
corporation. The minor types consist of the joint stock company, the joint venture, and the
business trust.

One of the first decisions that you will have to make as a business owner is how the
company should be structured. This decision will have long-term implications, so consult with
an accountant and attorney to help you select the form of ownership that is right for you. In
making a choice, you will want to take into account the following:

 Your vision regarding the size and nature of your business.

 The level of control you wish to have.
 The level of “structure” you are willing to deal with.
 The business’s vulnerability to lawsuits.
 Tax implications of the different ownership structures.
 Expected profit (or loss) of the business.
 Whether or not you need to re-invest earnings into the business.
 Your need for access to cash out of the business for yourself.

SOLE PROPRIETORSHIPS

The vast majority of small business start out as sole proprietorships. These firms are
owned by one person, usually the individual who has day-to-day responsibility for running the
business. Sole proprietors own all the assets of the business and the profits generated by it.

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They also assume complete responsibility for any of its liabilities or debts. In the eyes of the law
and the public, you are one in the same with the business.

Advantages of a Sole Proprietorship

 Easiest and least expensive form of ownership to organize.

 Sole proprietors are in complete control, and within the parameters of the law, may
make decisions as they see fit.
 Sole proprietors receive all income generated by the business to keep or reinvest.
 Profits from the business flow-through directly to the owner’s personal tax return.
 The business is easy to dissolve, if desired.

Disadvantages of a Sole Proprietorship

Sole proprietors have unlimited liability and are legally responsible for all debts against the
business. Their business and personal assets are at risk.

 May be at a disadvantage in raising funds and are often limited to using funds from
personal savings or consumer loans.
 May have a hard time attracting high-caliber employees, or those that are motivated by
the opportunity to own a part of the business.
 Some employee benefits such as owner’s medical insurance premiums are not directly
deductible from business income (only partially deductible as an adjustment to
income).

Federal Tax Forms for Sole Proprietorship (only a partial list and some may not
apply)

 Form 1040: Individual Income Tax Return

 Schedule C: Profit or Loss from Business (or Schedule C-EZ)
 Schedule SE: Self-Employment Tax
 Form 1040-ES: Estimated Tax for Individuals
 Form 4562: Depreciation and Amortization
 Form 8829: Expenses for Business Use of your Home
 Employment Tax Forms

PARTNERSHIPS

In a Partnership, two or more people share ownership of a single business. Like

proprietorships, the law does not distinguish between the business and its owners. The Partners
should have a legal agreement that sets forth how decisions will be made, profits will be
shared, disputes will be resolved, how future partners will be admitted to the partnership, how
partners can be bought out, or what steps will be taken to dissolve the partnership when

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needed;Yes, its hard to think about a “break-up” when the business is just getting started, but
many partnerships split up at crisis times and unless there is a defined process, there will be
even greater problems. They also must decide up front how much time and capital each will
contribute, etc.

Advantages of a Partnership

 Partnerships are relatively easy to establish; however time should be invested in

developing the partnership agreement.
 With more than one owner, the ability to raise funds may be increased.
 The profits from the business flow directly through to the partners’ personal tax returns.
 Prospective employees may be attracted to the business if given the incentive to
become a partner.
 The business usually will benefit from partners who have complementary skills.

Disadvantages of a Partnership

 Partners are jointly and individually liable for the actions of the other partners.
 Profits must be shared with others.
 Since decisions are shared, disagreements can occur.
 Some employee benefits are not deductible from business income on tax returns.
 The partnership may have a limited life; it may end upon the withdrawal or death of a
partner.

Types of Partnerships that should be considered:

General Partnership

Partners divide responsibility for management and liability, as well as the shares of profit
or loss according to their internal agreement. Equal shares are assumed unless there is a
written agreement that states differently.

Limited Partnership and Partnership with Limited Liability

“Limited” means that most of the partners have limited liability (to the extent of their
investment) as well as limited input regarding management decisions, which generally
encourages investors for short term projects, or for investing in capital assets. This form of
ownership is not often used for operating retail or service businesses. Forming a limited
partnership is more complex and formal than that of a general partnership.

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Joint Venture
Acts like a general partnership, but is clearly for a limited period of time or a single
project. If the partners in a joint venture repeat the activity, they will be recognized as an
ongoing partnership and will have to file as such, and distribute accumulated partnership assets
upon dissolution of the entity.

Federal Tax Forms for Partnerships (only a partial list and some may not apply)

 Form 1065: Partnership Return of Income

 Form 1065 K-1: Partner’s Share of Income, Credit, Deductions
 Form 4562: Depreciation
 Form 1040: Individual Income Tax Return
 Schedule E: Supplemental Income and Loss
 Schedule SE: Self-Employment Tax
 Form 1040-ES: Estimated Tax for Individuals
 Employment Tax Forms

CORPORATIONS

A corporation, chartered by the state in which it is headquartered, is considered by law

to be a unique entity, separate and apart from those who own it. A corporation can be taxed; it
can be sued; it can enter into contractual agreements. The owners of a corporation are its
shareholders. The shareholders elect a board of directors to oversee the major policies and
decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages of a Corporation

 Shareholders have limited liability for the corporation’s debts or judgments against the
corporations.
 Generally, shareholders can only be held accountable for their investment in stock of the
company. (Note however, that officers can be held personally liable for their actions,
such as the failure to withhold and pay employment taxes.)
 Corporations can raise additional funds through the sale of stock.
 A corporation may deduct the cost of benefits it provides to officers and employees.
 Can elect S corporation status if certain requirements are met. This election enables
company to be taxed similar to a partnership.

Disadvantages of a Corporation

 The process of incorporation requires more time and money than other forms of
organization.

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 Corporations are monitored by federal, state and some local agencies, and as a result
may have more paperwork to comply with regulations.
 Incorporating may result in higher overall taxes. Dividends paid to shareholders are not
deductible form business income, thus this income can be taxed twice.

Federal Tax Forms for Regular or “C” Corporations (only a partial list and some may
not apply)

 Form 1120 or 1120-A: Corporation Income Tax Return

 Form 1120-W Estimated Tax for Corporation
 Form 8109-B Deposit Coupon
 Form 4625 Depreciation
 Employment Tax Forms
 Other forms as needed for capital gains, sale of assets, alternative minimum tax, etc.

LIMITED LIABILITY COMPANY (LLC)

The LLC is a relatively new type of hybrid business structure that is now permissible in
most states. It is designed to provide the limited liability features of a corporation and the tax
efficiencies and operational flexibility of a partnership. Formation is more complex and formal
than that of a general partnership.
The owners are members, and the duration of the LLC is usually determined when the
organization papers are filed. The time limit can be continued if desired by a vote of the
members at the time of expiration. LLC’s must not have more than two of the four
characteristics that define corporations: Limited liability to the extent of assets; continuity of
life; centralization of management; and free transferability of ownership interests.

Federal Tax Forms for LLC

Taxed as partnership in most cases; corporation forms must be used if there are more
than 2 of the 4 corporate characteristics, as described above.
In summary, deciding the form of ownership that best suits your business venture should be
given careful consideration. Use your key advisors to assist you in the process.

MODIFICATIONS OF THE CORPORATE FORM OF OWNERSHIP

The corporate form of ownership has been modified to cater to special needs. Those
that have become popular are cooperatives and mutual companies.

Cooperatives
A cooperative is defined as an organization composed of individuals or small businesses
that have banded together to reap the benefits of a larger organization. A cooperative is an
organization composed of individuals or businesses that have banded together to reap the

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benefits of belonging to a large organization. Cooperatives are not organized for profit, but to
make its members individually profitable or to save money.

Various types of cooperatives:

1. Credit Unions – accepts deposits from members and lends money o its members
at a very reasonable interest rate.
2. Producers Cooperative – assists one another in the procurement of raw
materials, machinery, equipment, and other time-saving devices.
3. Marketing Cooperative – assists members in the marketing of their produce.
4. Consumers Cooperative – provides members with quality goods and services at
reasonable prices.
5. Service Cooperative – make service readily available and at a lower price.

Mutual Companies

A mutual Company is a financial-service firm (such as an insurance company or a

savings an loan association) owned by its policyholders and depositors. It may be classified
according to products or services they carry. They are as follows:

1. Mutual Savings Banks – are owned by depositors and specialize in savings and mortgage
loans. The profits of the company are credited to the account of the depositors.

2. Mutual Insurance Company – is a cooperative corporation organized and owned by its

policyholders. Voting control is in the hands of the insured. Profits earned by the
company can be used to pa policy dividends to policyholders and to strengthen the
insurer by building its surplus.

OTHER FORMS OF BUSINESS ORGANIZATION

Minor forms of business organization consist of the following:

1. The joint stock Company. A form of business enterprise in which the capital is divided
ino small units permitting a number of investors to contribute varying amounts to the
total, profits being divided between stockholders in proportion to the number of shares
they own.

2. The joint venture. This type of organization is created for the purpose of bringing
together several partners to engage in a business activity, which is normally very
specialized and which exists for a limited, specific purpose.

3. The business trust. It is a legal form of organization in which a trustee is appointed to

manage the business and its operations trough a trust relationship.

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CHAPTER EXERCISES

IDENTIFICATION:

1. Is a financial-service firm owned by its policy holders or depositors.

2. An organization composed of individuals or small businesses that have banded together
to reap the benefits of a larger organization.
3. Is an enterprise chartered by law, with most of the legal rights of a person, including the
right to conduct a business, to own and sell property, to borrow money, and to sue or
be sued.
4. It is owned and operated by a single person.
5. Legal association of two or more persons as co-owners of an unincorporated business.

TRUE OR FALSE

1. One of the advantages of partnerships is tax advantage.

2. One of the advantages of corporation is limited liability.
3. One of the advantages of corporation is double taxation.
4. Unlimited liability is the greatest disadvantage of the sole proprietorship.
5. One of the advantages of partnership is ease of formation.

Multiple Choice. (10pts)

Directions: read each statement carefully. Choose the most appropriate answer. Write
the letter of your answer on your examination booklet.
 The sole proprietorship is a form of business owned by:
a. The depositors
b. Policyholders
c. A single person
d. Stockholders
 It is the easiest and least costly form of business to organize.
a. Corporation
b. Partnership
c. Cooperative
d. Sole proprietorship
 Its existence is co-terminus with the life of its owner:
a. Sole proprietorship
b. Partnership
c. Corporation
d. Business trust

 Adding a new product lines is a potential point of disagreement between the owners
of this form of business:

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a. Corporation
b. Partnership
c. Cooperative
d. Mutual company
 The purpose of this type of cooperative is to provide members with quality goods
and services.
a. Credit union
b. Producers cooperative
c. Marketing cooperative
d. Consumers cooperative
 They are the owners of the corporation.
a. Depositors
b. Policyholders
c. Partners
d. Stockholders
 Transferring ownership is easiest in this form of business.
a. Sole proprietorship
b. Partnership
c. Corporation
d. Cooperative
 It is the most expensive and complicated form of business to organize.
a. Sole proprietorship
b. Partnership
c. Corporation
d. Joint venture
 It is organized to make its members individually profitable or save money.
a. Corporation
b. Partnership
c. Cooperative
d. Business trust
 It is a financial service firm owned by its policyholders or depositors.
a. Joint stock company
b. Joint venture
c. The business trust
d. Mutual company

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