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Types of Ventures

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0% found this document useful (0 votes)
11 views41 pages

Types of Ventures

Uploaded by

ZEMII
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ENTREPRENEURSHIP

UNIT 2
TYPES OF VENTURES
Introduction

 As a business owner, one of the things you consider is what


type of venture your business should be.
 Your decision will be influenced by the objective you are
trying to achieve. This will influence your decision based
on the advantages and the disadvantages of the different
types of ventures that will be considered in this topic.
Types of Ventures

 Sole trader
 Partnership (Limited and General)
 Franchise
 Limited Liability Company / Corporation (LLC)
 Private Companies
 Non-Governmental Organisation (NGO)
 State-owned enterprises (Statutory Organisations)
Sole Trader

a business that's owned by just one person.


 one of the most popular business types, because
it simple to start and only requires an individual.
 canhave multiple people operating the business,
but it must have one sole owner.
 nolegal distinction between the business and the
business owner
How a Sole Proprietorship is Formed

 There is no separate cost to establish a sole


proprietorship.
 A sole proprietorship is established when an owner begins
operating his business.
 There are no separate licenses to obtain to form a sole
proprietorship. (depends on country-in Jamaica, you
need)
 The sole proprietorship will be maintained so long as the
owner keeps doing the business.
Advantages of Sole Trader

 It is easy to form - A person becomes a sole proprietor


simply by running a business.
 owner maintains 100% control and ownership of the
business
 owner is the sole beneficiary of the business’s profits
Advantages of Sole Trader

 Owner avoids double taxation on his business profit by


reporting his business profit on his personal income tax

 Double taxation: means “the business’ income is taxed


once when the business makes the profit (the business is
taxed), and again when that profit is paid to the owners
(the owner is taxed)” (University of Richmond, (n.d))
Disadvantages of Sole Trader

 Owner is personally liable for all business losses and debts


(liabilities).
Claimants or creditors may have access to the owner’s
personal accounts, assets, or property if any business
accounts cannot cover his debt.

 If an owner of a sole proprietorship wishes to include


another owner, he must dissolve the sole proprietorship
and form a new business entity such as a general
partnership.
Partnership

 A partnership is a business owned by two or more persons


 Many partnerships have a maximum of twenty (20)
partners. However, for firms of professionals such as
accountants, engineers, and attorneys, there is no
maximum.
General partnership

 There are two types of partnerships:


1. General partnership
2. Limited partnership
 In a general partnership, all the partners are liable for all
the debts of the firm. That is, they have unlimited
liability.
 So, if necessary, the partners may have to use their
personal resources to settle the firm’s debts.
Limited Partnership

 In a limited partnership, one or more partner may have


limited liability, which means that when it comes to the
liability of the business, the personal assets of those
limited partners cannot be used to pay for the liablities.
Their only responsibility is that they may forego the
capital they invested, which will be put towards paying
the loan/liability of the business.
 However, at least one of the partners must be a general
partner.
Partnership Agreement or Deed

 Partnership Agreement or Deed is a legal document setting


out the terms of the partnership.
Features of a Partnership Deed

 The amount of capital to be introduced by each person


 The ratio in which profits and losses are to be shared
 The rate of interest, if any, to be paid on partners’ capital
 The rate of interest, if any, to be charged on partners’
drawings
 Salaries, if any, to be paid to partners
 The rate of interest to be paid on loans by partners
PARTNERSHIP ACT (1890)

In an instance where there is no partnership agreement,


 Profits and losses are to be shared equally
 There is to be no interest on capital
 No interest is to be charged on drawings
 No partner is to receive a salary
 Partners who make investment over the amount of the
agreed capital are to receive interest at the rate of 5% per
annum
Advantages of a Partnership

 Business risks are spread among more than one person


 Individual partners can develop special skills upon which
the other partner can rely rather than being a jack of all
trades
 Larger capital resources to start or expand the partnership
Disadvantages of a Partnership:

 More disputes between partners


 A partner is jointly and severely liable for his partners’
actions on behalf of the business
FRANCHISE

 Arrangement where one party (the franchiser) grants


another party (the franchisee) the right to use its
trademark or trade-name as well as certain business
systems and processes, to produce and market a good or
service according to certain specifications.
 Example: a fast-food franchise – KFC, Pizza Hut
 Franchisees - a franchise holder (Restaurants of Jamaica)
 Franchisor / Franchiser – Person that sells the franchise
right (KFC)
Advantages of Franchise
Advantages of Franchise

 Known set-up costs


 Based on their experience of operating their own outlets
initially and subsequently after other franchisees have
joined the network, a franchisor is likely to have a quite
accurate estimation of the set-up costs of the business. By
comparison, independent businesses that do not have the
benefit of opening multiple outlets beforehand
underestimate the set-up costs and risk compromising on
key elements, such as working capital. (Griffith
University)
Advantages of Franchise

 Greater chance of getting loan from financial


institutions
 Since banks can consider the profile of the franchise in
developing a risk profile for the business
Advantages of Franchise

 Access to existing brand and operating systems


 A franchisee does not need to reinvent the small business
wheel. Investing in a franchise will provide access to a
brand that may be well-known and regarded, as well the
‘know-how’ needed to operate that business.
Advantages of Franchise

 Less chances of business failure


 The strength of the brand and the guidance of the
franchisor can create a more profound impact compared
to a new independent business.
 This can help a franchisee achieve a higher level of
performance sooner potentially reduce the chances of
business failure. (Griffith University)
Advantages of Franchise

 high level of demand for its goods and services as a result of the
profile of the brand.
 Equally the products or services offered may be unique and
distinctive

 Help with Marketing


Marketing is usually undertaken by the franchisor, Freeing up
each franchisee from undertaking this important business function
E.g. KFC
Advantages of Franchise

 Training in the operation of the business /


and for Staff
 A franchisee may not need to have previously worked in
the field in which they are operating their franchised
business as they are trained by the franchisor. (Griffith
University)
Advantages of Franchise

 Ongoing advice, guidance and support


from franchisor / fellow franchisees
 This may be a combination of both structured and
scheduled support, as well as ad hoc support made
available according to a franchisee’s needs.
 The ability to refer to a senior business partner with
“been there, done that” experience is highly valued by
franchisees.
Advantages of Franchise

 Potential often exists to grow beyond one


outlet
 expand as business owners into additional outlets or
territories, subject to their capacity
Advantages of Franchise

 Franchisee can leverage the Supply Chain


of the Franchise
 An independent business owner must source their own
products and services and can spend months or longer to
find suppliers, whereas a franchise network has a
preexisting supply chain that a new franchisee can utilize.
Disadvantages of Franchise
Disadvantages of Franchise

 Potentially higher set-up costs compared


to independent small business
 A franchised business may cost more to initially establish than an
independent business.
 Additional cost will include franchisee fee (which is paid to access
the franchisor’s brand and know-how), and the training fee.
 Franchisors, based on their experience, may require a greater
investment in fit-out, equipment, initial stock and marketing than an
independent business
Disadvantages of Franchise

 A franchise is for a limited time only


 a franchise does not last forever. It is a conditional grant
limited by time.
 In Australia for example, it is for 5 years on average
(Franchising Australia survey) to be five years on average.
(Griffith University)
 A new demand may be placed on the franchisee for the
renewal of the franchise right
Disadvantages of Franchise

 Lack of independence to be completely


innovative
 A franchise business requires conformity to the policies
and procedures established by the franchisors.
 Franchisees do not have the creative or innovative
freedom to do whatever they please in the business,
 Failure to comply may result in termination of franchise –
loss of investment
Disadvantages of Franchise

 Risk of franchisee business failure is not


eliminated

 The risk of failure is part of any business venture,


including franchises
Disadvantages of Franchise

 Franchises entering or developing new


markets may be unknown among
potential customers
 When entering a new market, awareness about the
franchise may not exist and this benefit to the franchisee
is substantially diluted.
 The franchisee has to build the profile and brand of the
franchise in that new market
Disadvantages of Franchise

 Franchisees pay an additional levy for marketing in


addition to franchise fees.
 Franchisee could also pay a separate marketing fee or levy, which is pooled
with contributions from other franchisees and used to fund marketing
activities that promote the brand, and its products and services for the
benefit of the group as a whole.
 This additional fee may not be adequately considered by the potential
franchisee when considering whether or not to go into the franchise.
Disadvantages of Franchise

 Risk of franchisor choosing unsuccessful


marketing strategies or tactics

 Great emphasis is placed on the franchisor’s expertise in marketing
and promoting the brand and its goods and services, but if the
franchisor makes a poor choice in the strategy or tactical delivery of
a marketing campaign, all of the franchisees in the network may be
negatively affected.
Disadvantages of Franchise

 Support may not meet expectations


 the level of support that a franchisee may expect to
receive, may not meet their expectations.
 The franchisor may not have the resources to provide the
levels of support the franchisee thought they were going
to receive, or the support itself may not be as helpful as
originally believed.
Disadvantages of Franchise

 Risk that fellow franchisees damage the brand,


and indirectly, your business

 If the franchisor does not equally enforce compliance


standards across the network, the actions of a non-
compliant franchisee may damage the businesses of other
franchisees in the group.

Disadvantages of Franchise

 The franchisor may select the wrong people as


franchisees
 franchisor must be selective about the franchisees who
are accepted to ensure the long-term integrity of the
brand and compliance with the system.
 unsuitable candidate may cause harm to their own
business, the businesses of their fellow franchisees, or the
brand and network as a whole.
Other Disadvantages of Franchise

 Saturation in a mature market could result in


encroachment by the franchisor or other franchisees

 Franchisee may lack freedom of choice in suppliers


References

Read more: http://www.businessdictionary.com/definition/franchising.html


 Griffith University. (n.d.). Retrieved 09 18, 2017, from www.griffith.edu.au:
https://www.griffith.edu.au/__data/assets/pdf_file/0011/599627/Advantage
s-and-Disadvantages-of-Franchising.pdf?bustCache=52013702

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