Moving towards remaining types of business structures, oh wait! you haven’t read the first part yet? Like really? Huh! Okay, here is the link to the first part. Check it out and jump back here after that.
Corporations and franchise are something with we get involved daily, yet most of us are not aware of many things of them. Let’s breakdown them one by one.
Corporation: Unlike sole proprietorship and partnership, the management of a corporation is not necessary to be an owner of the company. A good part of the top management of corporations is working as employees over there.
Advantages:
Liabilities are owned by corporations and not by shareholders, hence shareholder’s risk is limited to invested capital.
Profits are earned after the deduction of corporate tax, which is usually less than the personal tax for the same amount of profit.
Disadvantages:
Corporation taxes are complicated; hence it needs the consultation of experts regularly.
The incorporation of a company is expensive.
There are broadly three types of corporation:
Private corporation: Where a share of the company is not available to the general public on any stock exchange. Hence, the company is closely own by a small group of shareholders. Example: Dell
Public corporation: Their shares are traded on a stock exchange and they don’t have any hard limitations in terms of the number of shareholders. Example: Tata consultancy services
Professional corporation: This is a unique type of corporation which are operated in some specific profession by a group of same professionals like lawyers, doctors, and public accountants. The main aim of a professional corporation is to decrease the pressure on individuals. (For example, if a lawyer can not perform well in few cases due to any reason, it may harm his/her career badly. But in a professional corporation, you always have a replacement of you which can take over your assignments for some time.) Example: Deloitte
Franchise: It’s an arrangement in which a seller (franchisor) sells a buyer (franchisee) the right to sell or distribute products/services made available through the franchisor, under the franchisor’s brand. Franchisors can have partnerships, corporations, or any type of business structure.
Example: all our favorite food outlets. :p
Advantages:
Requires less working capital than similar non-franchise business, due to mass production of raw material and less need of marketing by the franchisee.
Training of business and operation is usually provided by the franchisor.
High chance of getting credit because of the brand value of franchisor.
Disadvantages:
Royalties and other service fees charged by franchisors can negatively impact profitability.
Franchisees have to work under guidelines given by franchisors, which can be not suited to that demographic.
As franchisor sets the price, competing with less expensive local players can be difficult. It this case getting credit by banks and NBFCs drastically decreases.
With this, we have covered all kinds of business structures. Any other structure is a subpart of any above-mentioned structure.
Drop-down your suggestions and views in the comment section.
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