Class Information Class #7 Business 095 – 4 credits Tuesdays- 5pm-8:40pm KCI building, Room...

Class Information Class #7 Business 095 4 credits Tuesdays- 5pm-8:40pm KCI building, Room 4004 Ben Dubin [email protected] Mobile number: 408-621-0170 and mention that you are a Foothill student in my Business 95 class 1

2009 - Ben Dubin -, Inc. All rights reserved. Schedule May 26 (Today!) Planning and Organizing a Small Business Legal Business Structures Discussion of business ideas Mystery Entrepreneur Check blog for additional readings & assignments June 2 Quiz #2 (and there will be NO MIDTERM!) Discussion on Strategy Business Model Canvas Work on Business ideas Mystery Entrepreneur Check blog for additional readings & assignments 2

Textbook * Well, there is one book that I want you to get 4

Textbook Reid Hoffman 5

15 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.Am I passionate about my product or service? 2.What is my tolerance for risk? 3.Am I good at making decisions? 4.Am I willing to take on numerous responsibilities? 5.Will I be able to avoid burnout? WSJ Book - Entrepreneurship Quiz

16 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.It Forces you to identify your strengths and weaknesses 2.Gives you clear direction, which can help eliminate stress 3.It will serve as a resume when you seek funds/partners 4.It makes you evaluate the market for your product or service and size up the competition Business Model

17 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.It Forces you to identify your strengths and weaknesses 2.Gives you clear direction, which can help eliminate stress 3.It will serve as a resume when you seek funds/partners 4.It makes you evaluate the market for your product or service and size up the competition Writing a Business Model

18 2006 The McGraw-Hill Companies, Inc. All rights reserved. Instead of a Business Plan! Start-ups are not smaller models of big companies! It is more visual It is more dynamic It is about actions as well as thinking It is about key activities more than results Business Model Canvas

19 2006 The McGraw-Hill Companies, Inc. All rights reserved. The foundation of your business How the LEGAL world recognizes you It is what makes your business officially a business Legal Business Structures

21 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. PhotoLink/Getty Images What is your vision regarding the size and nature of your business What is the level of control you wish to have? The level of structure you are willing to deal with The business; vulnerability to lawsuits Tax implications of different structures Expected profit of the business Do you need to re-invest earnings into the business The end game what is your exit plan?

22 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.The vast majority of small businesses start out as sole proprietorships. 2.These firms are owned by one person, usually the individual who has day-to-day responsibilities for running the business. 3.Sole proprietors own all the assets of the business and the profits generated by it. They also assume complete responsibility for any of its liabilities or debts. 4.In the eyes of the law and the public, you are one in the same with the business. Sole Proprietorship

23 2006 The McGraw-Hill Companies, Inc. All rights reserved. Commonly know as DBA Doing Business As The phrase "doing business as" (abbreviated DBA or d/b/a) is a legal term, meaning that the name under which the business or operation is conducted and presented to the world is not the legal name of legal person or persons who own it and are responsible for it. The distinction between an actual and a "fictitious" name is important because businesses with "fictitious" names give no obvious indication of the entity that is legally responsible for their operation. Sole Proprietorship

24 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. You assume unlimited liability 2.May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans. 3.May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to own a part of the business. 4.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). 5.Life of the business is dependent on the your life. Sole Proprietorship -

25 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.Easiest and least expensive form of ownership to organize. 2.Youre the boss 3.It is easy to get started 4.You keep all of the profits - sole proprietors receive all income generated by the business to keep or reinvest 5.Sole proprietors receive all income generated by the business to keep or reinvest. 6.Profits from the business flow directly to the owner's personal tax return. 7.The business is easy to dissolve, if desired. Sole Proprietorship +

26 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1. In a Partnership, two or more people share ownership of a single business. 2. Like proprietorships, the law does not distinguish between the business and its owners. 3. 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, and what steps will be taken to dissolve the partnership when needed. Yes, it's hard to think about a breakup 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. 4. They also must decide up-front how much time and capital each will contribute, etc. Partnership

27 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1. Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. 2. With more than one owner, the ability to raise funds may be increased. 3. The profits from the business flow directly through to the partners' personal tax returns. 4. Prospective employees may be attracted to the business if given the incentive to become a partner. 5. The business usually will benefit from partners who have complementary skills. Partnership +

28 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1. Partners are jointly and individually liable for the actions of the other partners. 2. Profits must be shared with others. 3. Since decisions are shared, disagreements can occur. 4. Some employee benefits are not deductible from business income on tax returns. 5. The partnership may have a limited life; it may end upon the withdrawal or death of a partner. Partnership -

29 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.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. 2.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. 3.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 as well as distribute accumulated partnership assets upon dissolution of the entity Partnerships : types

30 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.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. 2.A corporation can be taxed, it can be sued, and it can enter into contractual agreements. 3.The owners of a corporation are its shareholders. 4.The shareholders elect a board of directors to oversee the major policies and decisions. 5.The corporation has a life of its own and does not dissolve when ownership changes. Corporation

31 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.Shareholders have limited liability for the corporation's debts or judgments against the corporations. 2.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.) 3.Corporations can raise additional funds through the sale of stock. 4.A corporation may deduct the cost of benefits it provides to officers and employees. 5.Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership. Corporation +

32 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.The process of incorporation requires more time and money than other forms of organization. 2.Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. 3.Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice. Corporation -

34 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 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. LLCs 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. Limited Liability Company (LLC)

35 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.Shareholders have limited liability for the corporation's debts or judgments against the corporations. 2.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.) 3.Corporations can raise additional funds through the sale of stock. 4.A corporation may deduct the cost of benefits it provides to officers and employees. 5.Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership. LLC +

36 McGraw-Hill/Irwin 2006 The McGraw-Hill Companies, Inc. All rights reserved. 1.The process of incorporation requires more time and money than other forms of organization. 2.Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. 3.Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice. LLC -

Set-up costs: Sole Proprietorship - cheap Partnerships - expensive Corporations - expensive Limited Liability Company (LLC) - expensive

Maintenance costs: Sole Proprietorship - cheap Partnerships - expensive Corporations - expensive Limited Liability Company (LLC) - expensive

Form 1040: Individual Income Tax Return Schedule C: Business Profit(Loss) Schedule SE: Self-Employment Tax Form 1040ES: Estimated Tax For Individuals Form 4562: Depreciation & Amortization Form 8829: Expenses For Business Use Of Your Home Forms 941, W-2, W-3: Employment Tax Forms 40

Articles of Co-Partnership Tax Forms Form 1065 K-1: Partners Share Of Income, Credit, Deductions Form 4562: Depreciation Form 1040: Individual Income Tax Return Schedule E: Supplemental Income & Loss Schedule SE: Self-Employment Tax Form 1040-ES: Estimated Tax For Individual 41

Form 1120S: Income Tax Return For S Corporation Form 1120S K-1: Shareholders Share Of Income, Credit, Deductions Form 4625: Depreciation Forms 941, W-2, W-3: Employment Tax Forms Form 1040: Individual Income Tax Return Schedule E: Supplemental Income(Loss) Schedule SE: Self-Employment Tax From 1040ES: Estimated Tax For Individuals Other Forms 42 Royalty-Free/CORBIS

Since 1977 Benefits: Limited Liability Taxed As Partnership Similar To S Corporation Owners = Members Lifespan- Determined At Organization 43 Emma Lee/Life File/Getty Images

Limited Liability Partnership Protects Individual Partners Not Recognized By Every State Family Limited Liability Partnership Partners Related Agriculture/Family Farms Professional Service Corporation Provides Licensed Professional Services Doctors, Lawyers, & Accountants 44 F. Schussler/PhotoLink/Getty Images

Nonprofit Corporations Civic, Charitable, Educational, Religious Tax Exempt Cooperative Independent Producers Buys/Sells For Clients Joint Venture Fractional Ownership 45 Royalty-Free/CORBIS Other Legal Forms of Ownership (cont)

What every you choose You can change it!

FYI: Public and Private Companies

Public and Private Companies A publicly held is a company which has issued securities (stock) through an offering (IPO), and which are now traded on the open market The opposite of this is a private company

Your Company Will be a private company

Public and Private Companies

2009 - Ben Dubin -, Inc. All rights reserved. Mystery Founder Members of the great wave of youngsters who had come of age wearing blue jeans in the 1970s were now older, wealthier, and more conservative

143 Gap Today The largest specialty retailer in the US The second largest clothing retailer in the world Zara overtakes Gap to become world's largest clothing retailer http://www.guardian.co.uk/business/2 008/aug/11/zara.gap.fashion http://www.guardian.co.uk/business/2 008/aug/11/zara.gap.fashion

144 Gap Today Approximately 135,000 employees 3,076 stores worldwide 2,551 are in the United States

145 Gap Today Their market cap today is: $15.94B Revenue last year was $16.435B Gross Profit was $6.289B

146 Gap Today By the way, Donald Fisher and his wife started seriously collecting art in the 1960s Cool art adorned their offices and may of the early Gap stores Today their collection is amazing Not just any art, but modern art

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158 Art! MOMA's current exhibition, "Calder to Warhol: Introducing the Fisher Collection," represents the first public unveiling of that legacy and is a cornerstone of the museum's 75th anniversary program. Read more: http://www.time.com/time/travel/article/0,31542,2002139,00.html#ixzz1Gi4m5xUQ http://www.time.com/time/travel/article/0,31542,2002139,00.html#ixzz1Gi4m5xUQ

159 Gaps Mission Statement Gap, Inc. is a brand-builder. We create emotional connections with customers around the world through inspiring product design, unique store experiences, and compelling marketing. Our purpose? Simply, to make it easier for you to express your personal style throughout your life. We have more than 150,000 passionate, talented people around the world who help bring this purpose to life for our customers. Across our company and embedded in our culture our key values that guide our success: integrity, respect, open- mindedness, quality and balance. Everyday, we honor these values and exemplify our belief in doing our business in a socially responsible way.

2009 - Ben Dubin -, Inc. All rights reserved. Mystery Founder Just two days before his passing, it was announced that Donald and Doris Fisher would place future custodianship of their collection with the San Francisco Museum of Modern Art. Although he wanted his own museum to house his public legacy, local opposition to building it in a national park (Presidio) prevented this from happening. The Fisher partnership with SFMOMA now elevates the museums status to an elite class, rivaling some of the worlds best public collections, especially in modern and contemporary art

2009 - Ben Dubin -, Inc. All rights reserved. Mystery Founder http://www.nbcnews.com/video/nightly- news/33063821#33063821 http://www.nbcnews.com/video/nightly- news/33063821#33063821 https://www.youtube.com/watch?v=If1UG4srGVM https://www.youtube.com/watch?v=If1UG4srGVM Art: https://www.youtube.com/watch?v=is7U6N6wS0E https://www.youtube.com/watch?v=is7U6N6wS0E https://www.youtube.com/watch?v=z84kLfAE4oM https://www.youtube.com/watch?v=z84kLfAE4oM

2009 - Ben Dubin -, Inc. All rights reserved. Mystery Founder Commercials: https://www.youtube.com/watch?v=3KizEsEnctU https://www.youtube.com/watch?v=3KizEsEnctU https://www.youtube.com/watch?v=z4kfS4rQi3M https://www.youtube.com/watch?v=z4kfS4rQi3M https://www.youtube.com/watch?v=oqwjP3wcuDE https://www.youtube.com/watch?v=oqwjP3wcuDE https://www.youtube.com/watch?v=q774E37pV4U https://www.youtube.com/watch?v=q774E37pV4U https://www.youtube.com/watch?v=x6sGnAoWOyE https://www.youtube.com/watch?v=x6sGnAoWOyE

164 See you next Tuesday!!!

Class Information Class #7 Business 095 – 4 credits Tuesdays- 5pm-8:40pm KCI building, Room...

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