Chapter 3

Understanding
Entrepreneurship
and Small
Business

PowerPoint Presentation by Charlie Cook

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All rights reserved.
 Key Topics
Small business and its importance in the
economy
Entrepreneurship versus small business
Starting and funding a small business
Sole proprietorships, partnerships, and
corporations
Creating and managing corporations
Corporate trends and issues

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 What Is Small Business?
Independently owned and
managed business that
does not dominate its
market

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 Small business plays a critical role in
the U.S. economy.
Job Creation

Innovation

Importance to Big
Businesses

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 Entrepreneurs are simply those who
understand that there is little difference
between obstacle and opportunity and
are able to turn both to their
advantage.
Victor Kiam

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 Entrepreneurship vs. Small Business

Entrepreneur:
Accepts the risks and
opportunities of
creating, operating and
growing a new business.

Small Business Owner:

Does not have plans for
growth.

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 Getting Started
Buying an
Existing Business
Starting From
Scratch

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 Financing the Small Business
Personal resources
Loans
Venture capital companies
Small-business investment companies
Small Business Association (SBA)
Financial aid and management advice

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 Franchising: An Ownership Opportunity

Advantages
Proven business
opportunity Disadvantages
Access to
Start-up costs
management
On-going payments
expertise
Management rules
and restrictions

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 Trends in Small Business Start-ups

Emergence of
E-commerce

Crossovers From
Big Business

Opportunities for
Minorities & Women

Global
Opportunities

Increased
Survival Rates

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 Reasons for Success and Failure
Failure
Poor management
Neglect
Weak control systems
Insufficient capital Success
Hard work, drive,
dedication
Market demand
Strong management
Luck!!!

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 Sole Proprietorships
Advantages: Disadvantages:
Freedom Unlimited Liability
Simple to form Limited resources
Low start up costs Limited fundraising
Tax benefits capability
Lack of continuity

Unlimited Liability
Legal principle holding owners responsible for
paying off all debts of a business

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 Partnerships
Advantages: Disadvantages:
More talent and money Unlimited liability
More fundraising Disagreements among
capability partners
Relatively easy to form Lack of continuity
Tax benefits

Unlimited Liability
Legal principle holding owners responsible
for paying off all debts of a business

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 What is a Corporation?
An artificial being, invisible, intangible, and
existing only in contemplation of the law.

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 Corporations
Advantages: Disadvantages:
Limited Liability Double taxation
Continuity Fluid control
Stronger fundraising Complicated and
capability expensive to form

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 Types of Corporations

Closely Held (Private) Corporation

Publicly Held (Public) Corporation

Subchapter S Corporation
Limited Liability Corporation (LLC)
Professional Corporation
Multinational or Transnational Corporation

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 Corporate Governance Hierarchy
Stockholders

Board of Directors

Officers

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 Stockholders: Owners of Corporations
Stock: A share of ownership in a corporation
Common Stock
Preferred Stock

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 Special Issues in Corporate Ownership

Joint Ventures and

Strategic Alliances

Employee Stock
Ownership Programs
(ESOPS)

Institutional
Ownership

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 Special Issues in Corporate Ownership

Mergers
Mergersand
&
Acquisitions
Acquisitions
(M&As)

Divestitures
Divestitures
and Spin-offs
& Spin-offs

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 Three Forms of Business
Business Investment
Liability Continuity Management
Form Sources

Proprietorship Personal, Ends with death Personal, Personal

limited or decision of unrestricted
owner

General Personal, Ends with death Unrestricted or Personal by

Partnership unlimited or decision of depends on partner(s)
any partner partnership
agreement

Corporation Capital As stated in Under control of Purchase of

invested charter, board of stock
perpetual or for directors, which
specified period is selected by
of years stockholders

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Copyright 2003 Prentice Hall, Inc. 4 - 21

 Chapter Review
Define small business and explain its importance to
the U.S. economy.
Distinguish between entrepreneurship and small
business.
Describe the start-up decisions made by small
businesses and the potential sources of financial aid
and management advice.
Describe sole proprietorships, partnerships, and
corporations, and explain the advantages and
disadvantages of each.
Identify the different types of corporations.

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