Small Business and Forms of Business Ownership

Most Businesses Are Small Businesses

Although many people associate the term business with corporate giants such as Walmart, 3M, and ExxonMobil, most people do not know that 99.7 percent of all U.S. companies are considered small businesses. These firms have generated 65 percent of new jobs over the past two decades and employ half of all private-sector (nongovernment) workers.² Small business is also the launching pad for new ideas and products. Small businesses hire 43 percent of high-tech workers such as scientists, engineers, and computer programmers, who devote their time to developing new goods and services.³

WHAT IS A SMALL BUSINESS?

How can you tell a small business from a large one? The Small Business Administration (SBA), the federal agency most directly involved with this sector of the economy, defines a small business as an independent business having fewer than 500 employees. However, those bidding for government contracts or applying for government assistance may vary in size according to industry. For example, small manufacturers fall in the 500-worker range, whereas wholesalers must employ fewer than 100. Retailers may generate up to $7 million in annual sales and still be considered small businesses, whereas farms or other agricultural businesses must generate less than $750,000 annually to be designated as small.⁴

TYPICAL SMALL-BUSINESS VENTURES

Small businesses have experienced steady erosion in some industries as larger firms have bought them out and replaced them with larger operations. The number of independent home improvement stores, for example, has fallen dramatically as Lowe's, Home Depot, Menard's, and other large brands have increased the size and number of their stores. But as TABLE 5.1 reveals, the businesses least likely to be gobbled up are those that sell personalized services, rely on certain locations, and keep their overhead costs low.

As FIGURE 5.1 shows, small businesses provide most jobs in the construction, agricultural services, wholesale trade, services, and retail trade industries. Retailing to the consumer is another important industry for small firms. Retailing giants such as Amazon and Macy's may be the best-known firms, but smaller stores and Web sites outnumber them. And these small firms can be very successful, often because they can keep their overhead expenses low.

Contributions of Small Business to the Economy

Small businesses form the core of the U.S. economy. Businesses with fewer than 500 employees generate more than half the nation's gross domestic products (GDP). These businesses contribute in many ways, including creating jobs, new products, and even whole new industries. Small firms are credited with U.S. competitiveness in a number of global markets.⁵

CREATING NEW JOBS

One impressive contribution that small business makes to the U.S. economy is the number of new jobs created each year. On average, companies with fewer than 500 employees are responsible for creating two of every three new jobs in a year.⁶ The smallest companies—those with four or fewer employees—are responsible for a significant share of those jobs. Several provisions of the recent Small Business Jobs Act may help give a further boost to these job numbers by raising the dollar amount of small business loans available to companies.⁷

Even if you never plan to start your own company, you will probably work for a small business at some point in your career, particularly at the beginning. Small firms often hire the youngest workers. Most of us will spend some time working in areas dominated by small business such as construction, retail, or food service.

INNOVATION

Small businesses are adept at developing new and improved goods and services. Innovation is often the entire reason for the founding of a new business. In a typical year, small firms develop twice as many product innovations per employee as larger firms. They also produce over 16 times more patents per employee than larger firms.⁸ Key 20th century innovations developed by small businesses include the airplane, the personal computer, soft contact lenses, and the zipper. Innovations that already drive small businesses in the 21st century include those that fall into the social networking, security, and green energy industries.

CREATING NEW INDUSTRIES

Small firms give businesspeople the opportunity and outlet for developing their new ideas. Sometimes these innovations become entirely new industries. TABLE 5.2 illustrates some of the newest jobs within both traditional and new industries, many of which can be found in small businesses. Many of today's largest and most successful firms, such as Whole Foods, Google, and Mattel, began as small businesses. Facebook co-founders Mark Zuckerberg, Dustin Moskovitz, Chris Hughes, and Eduardo Saverin launched their new business from their college dorm room. Within a few years, Facebook had logged more than 500 million active users, positioned itself as a leader in the new industry of social networking, and prompted others to start their own businesses.⁹

Why Small Businesses Fail

As we have seen, small businesses play a huge role in the U.S. economy. However, owning or even working in a small business is often more challenging than in a large firm. Some of the advantages of small business, such as lower costs, can also be disadvantages. For example, suppose a firm has lower costs because it doesn't have a human resources department. In this case, the owner must deal with all human resource issues as well as all other duties. This same concept applies to other areas within a small business as well, from accounting to production to marketing and sales. The owner and the staff have to perform many duties, often without the resources of larger firms. To succeed, a small business owner must have a clear focus, stick to a plan, and hope for a bit of luck. However, even in the best case, owning small business can be difficult. Some of the more common issues that plague small firms include management inexperience, inadequate financing, and the challenge of meeting government regulations.

As FIGURE 5.2 shows, seven out of ten new businesses survive at least two years and about half make it to the five-year mark. But by the tenth year, just 34 percent survive.¹⁰ Let's look a little more closely at why this happens.

MANAGEMENT SHORTCOMINGS

Management shortcoming may include lack of people skills, inadequate knowledge of finance, inability to track inventory or sales, poor assessment of the competition, or simply the lack of time to do everything required. As we have seen, large firms often have the resources to recruit specialists in areas such as marketing and finance, whereas the owner of a small business often must wear many hats.

Also, the challenge of scaling is especially difficult for small business. For example, imagine a highly profitable restaurant owned by a celebrity chef who enjoys creating exciting, new dishes. As the business grows, she may want to expand her restaurant to multiple locations. However, with multiple locations, the chef must divide her time among several restaurants, deal with an expanded staff, and handle all the other problems that come from running a larger operation. She must hire chefs for the other locations who may not be as talented or motivated as she. What was a once a great single restaurant has become a collection of average restaurants that are not as stellar as the original one. The chef, now more of a manager than a cook, is likely to wonder where she went wrong. Where indeed?

INADEQUATE FINANCING

Many of the challenges that small businesses face can be traced to inadequate financing. Money is the foundation of any business. Every business, large or small, needs a certain amount of financing in order to operate, grow, and thrive. First-time business owners often assume their firms will generate enough funds from initial sales to finance continuing operations. But building a business takes time. Products need to be developed, employees have to be hired, a Web site must be constructed, a distribution strategy has to be determined, office or retail space might have to be secured, and so forth. Most small businesses—even those with minimal start-up costs—sometimes don't turn a profit for months or even years.¹¹

GOVERNMENT REGULATION

Small-business owners cite their struggle to comply with government regulations as one of the biggest challenges they face. Some firms falter because of this burden alone. Paperwork costs account for billions of small-business dollars each year. A large company can better cope with requirements for forms and reports. Larger firms often find it makes economic sense to hire or contract with specialists in specific types of regulation, such as employment law and workplace safety regulations. By contrast, small businesses often struggle to absorb the costs of government paperwork because of their smaller staff and budgets. The smallest firms—those with fewer than 20 employees—spend 45 percent more per employee than larger firms just to comply with federal regulations.¹²

Available Assistance for Small Businesses

An important part of organizing a small business is financing its activities. Once a business plan has been created, various sources can be tapped for loans and other types of financing. These include government agencies as well as private investors.

SMALL BUSINESS ADMINISTRATION

Not all government involvement in small business is burdensome. Small businesses can benefit from using the resources provided by the U.S. government's Small Business Administration (SBA). The SBA is the principal agency concerned with helping small U.S. firms, and it is the advocate for small businesses within the federal government. Several thousand employees staff the SBA's Washington headquarters and its 1,800 regional and field offices.¹³ The SBA's mission statement declares that “Small business is critical to our economic recovery and strength, to building America's future, and to helping the United States compete in today's global marketplace.”¹⁴

Contrary to popular belief, the SBA seldom provides direct business loans or outright grants to start or expand small businesses. Rather, the SBA guarantees small-business loans made by private lenders, including banks and other institutions. To qualify for an SBA-backed loan, borrowers must be unable to secure conventional commercial financing on reasonable terms and be a ”small business” as defined by SBA size standards.¹⁵ Direct SBA loans are available in only a few special situations, such as natural disaster recovery, energy conservation, or development programs. Under the 2009 Recovery Act, the SBA temporarily eliminated specific loan fees and raised the guarantee level on some of its loans.¹⁶ The previously mentioned Small Business Jobs Act was also intended to make more capital available to entrepreneurs and small business owners.¹⁷

Start-ups and other small firms can obtain an SBA-guaranteed microloan of up to $35,000, with the average being $13,000 with a maximum term of six years.¹⁸ Microloans may be used to buy equipment or operate a business but not to buy real estate or pay off other loans. These loans are available from nonprofit organizations located in most states. Other sources of microloans include the federal Economic Development Administration; some state governments; and certain private lenders, such as credit unions and community development groups. The most frequent suppliers of credit to small firms are banks.

Small-business loans are also available through a Small Business Investment Company (SBIC), an SBA-licensed organization operated by experienced venture capitalists. SBICs use their own capital, supplemented with government loans, to invest in small businesses. Like banks, SBICs are profit-making enterprises, but they are likely to be more flexible than banks in their lending decisions. Large companies that used SBIC financing when they were small start-ups include Callaway Golf, FedEx, and Costco.¹⁹

SMALL-BUSINESS OPPORTUNITIES FOR WOMEN AND MINORITIES

In the United States today, more than 8 million firms are owned by women, employing more than 7 million workers and generating nearly $1.3 trillion in sales. In fact, women own 40 percent of companies in the United States, and those firms are growing at twice the rate of U.S. firms as a whole.²⁰

Like male business owners, women have a variety of reasons for owning their own companies. Some have a unique business idea that they want to bring to life. Others decide to form a business when they lose their jobs or become frustrated with the bureaucracies in large companies. In some cases, women leave large corporations when they feel blocked from opportunities for advancement—when they hit the so-called “glass ceiling.” Because women are more likely than men to be their family's primary caregiver, many seek self-employment as a way to achieve flexible working hours so they can spend more time with their families.

Business ownership is also an important opportunity for America's racial and ethnic minorities. In recent years, the growth in the number of businesses owned by African Americans, Hispanics, and Asian Americans has far outpaced the overall growth of U.S. businesses. FIGURE 5.3 shows the percentages of minority ownership in major industries. The relatively strong presence of minorities in the services and retail industries is especially significant because these industries contain the greatest number of businesses.

Forms of Private Business Ownership

Regardless of its size, every business is organized according to one of three categories of legal structure: sole proprietorship, partnership, or corporation. Each legal structure offers unique advantages and disadvantages. But because there is no universal formula for every situation, U.S. state governments have created or adopted a variety of organizational structures. Business owners can then choose the structure that best meets their needs. For example, within the corporate organizational form there are C corporations, S corporations, and, depending on size and other factors, limited liability companies (LLC). Within partnerships, there are general partnerships, limited partnerships, and limited liability partnerships. And there are even variations on sole proprietors, such as a single person LLC. FIGURE 5.4 shows the breakdown of organizational forms, with sole proprietorships being the most common form of business ownership, accounting for more than 70 percent of all firms in the United States.

SOLE PROPRIETORSHIPS

The most common form of business ownership, the sole proprietorship is also the oldest and the simplest. In a sole proprietorship, no legal distinction separates the sole proprietor's status as an individual from his or her status as a business owner. Although sole proprietorships are common in a variety of industries, they are concentrated primarily among small businesses such as repair shops, small retail stores, and service providers such as plumbers, hair stylists, and photographers.

A sole proprietorship offers some unique advantages. Because such businesses involve a single owner, they are easy to form and dissolve. A sole proprietorship gives the owner maximum management flexibility, along with the right to all profits after payment of business-related bills and taxes. A highly motivated owner of a sole proprietorship directly reaps the benefits of his or her hard work.

Minimal legal requirements simplify creating a sole proprietorship. The owner registers the business or trade name—to guarantee that two firms do not use the same name—and takes out any necessary licenses. Local governments require certain licenses for businesses such as restaurants, motels or hotels, and retail stores. In addition, some occupational licenses require business owners to obtain specific insurance such as liability coverage.

Sole proprietorships are also easy to dissolve. This advantage is particularly important to temporary or seasonal businesses that set up for a limited period of time. It's also helpful if the owner wants or needs to close the business for any reason—say, to relocate or to accept a full-time position with a larger firm.

Management flexibility is another advantage of a sole proprietorship. The owner can make decisions without reporting to a manager, take quick action, and keep trade secrets. A sole proprietorship always bears the individual stamp or flair of its owner, whether it's a discount loyalty program or longer warranty.

The greatest disadvantage of the sole proprietorship is the owner's personal financial liability for all debts of the business. Also, the business must operate with financial resources limited to the owner's personal funds and money that he or she can borrow. Such financing limitations can keep the business from expanding.

PARTNERSHIPS

Another option for organizing a business is to form a partnership. The Uniform Partnership Act, which regulates this ownership form in most states, defines a partnership as an association of two or more persons who operate a business as co-owners by voluntary legal agreement. Many small businesses begin as partnerships between co-founders.

Partnerships are easy to form. All the partners need to do is register the business name and obtain any necessary licenses. Having a partner generally means greater financial capability and someone to share in the tasks and decision making of a business. It's even better if one partner has a particular skill, such as design, while the other has a knack for financials.

Most partnerships have the disadvantage of being exposed to unlimited financial liability. Each partner bears full responsibility for the debts of the firm, and each is legally liable for the actions of the other partners. If the firm fails and is left with debt—no matter who is at fault—every partner is responsible for those debts. If one partner defaults, the others are responsible for the firm's debts, even if it means dipping into personal funds. To avoid these problems, many firms establish a limited partnership or a limited-liability partnership, which limits the liability of partners to the value of their interests in the company. In the case of a limited partnership, the general partners have complete liability, while the liability of limited partners is limited to the amount of their investment. Limited-liability partnerships go a step further in limiting the liability for all partners to the assets of the partnership.

Breaking up a partnership is more complicated than dissolving a sole proprietorship. Rather than simply withdrawing funds from the bank, the partner who wants out may need to find someone to buy his or her interest in the firm. The death of a partner also threatens the survival of a partnership. A new partnership must be formed, and the estate of the deceased is entitled to a share of the firm's value. To ease the financial strains of such events, business planners often recommend life insurance coverage for each partner, combined with a buy–sell agreement. The insurance proceeds can be used to repay the deceased partner's heirs and allow the surviving partner to retain control of the business. Because partnerships are vulnerable to personal conflicts that can quickly escalate, it's important for partners to choose each other carefully—not just because they are friends—and try to plan for the future.

CORPORATIONS

A C corporation is a legal organization with assets and liabilities separate from those of its owner(s). A corporation can be a large or small business. It can be Ford Motor Corp. or a local auto repair shop.

Corporate ownership offers considerable advantages. Because a corporation is a separate legal entity, its stockholders have only limited financial risk. If the firm fails, stockholders lose only the money they invested. This applies to the firm's managers and executives as well. Because they are not the sole proprietors or partners in the business, their personal savings are not at risk if the company folds or goes bankrupt. This protection also extends to legal risk. Class-action suits involving automakers, drug manufacturers, and food producers are filed against the companies, not the owners of those companies. Although companies such as BP recently experienced class-action suits, their employees and stockholders were not required to pay the settlements from their own bank accounts.²¹

Corporations offer other advantages. They gain access to expanded financial capabilities based on the opportunity to offer direct outside investments such as stock sales. A large corporation can legally generate internal financing for many projects by transferring money from one part of the corporation to another.

One major disadvantage for a corporation is the double taxation of corporate earnings. After a corporation pays federal, state, and local income taxes on its profits, its owners (stockholders) also pay personal taxes on any distributions of those profits they receive from the corporation in the form of dividends.

S CORPORATIONS AND LIMITED LIABILITY CORPORATIONS

To avoid double taxation of business income while minimizing financial liability for their owners, many smaller firms (those with fewer than 100 stockholders) organize as an S corporation. An S corporation can elect to pay federal income taxes as a partnership while retaining the liability limitations typical of corporations. S corporations are only taxed once. Unlike regular corporations, S corporations do not pay corporate taxes on their profits. Instead, the untaxed profits of S corporations are paid directly as dividends to shareholders, who then pay the individual tax rate. This tax advantage has resulted in a tremendous increase in the number of S corporations. Consequently, the IRS closely monitors S corporations because some businesses don't meet the legal requirements to form S corporations.²²

Business owners may also form a limited-liability company (LLC) to secure the corporate advantage of limited liability while avoiding the double taxation characteristic of corporations. An LLC combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.

EMPLOYEE-OWNED CORPORATIONS

Another alternative for creating a corporation is employee ownership, in which workers buy shares of stock in the company that employs them. The corporate organization stays the same, but most stockholders are also employees. The popularity of this form of corporation is growing, with the number of employee ownership plans increasing dramatically. Today about 20 percent of all employees of for-profit companies report owning stock in their companies; approximately 25 million Americans own employer stock through employee stock ownership plans (ESOPs), options, stock purchase plans, 401(k) plans, and other programs.

NOT-FOR-PROFIT CORPORATIONS

The same business concepts that apply to commercial companies also apply to the not-for-profit corporation—an organization whose goals do not include pursuing a profit. About 1.5 million not-for-profits operate in the United States, including charitable groups, social-welfare organizations, government agencies, and religious congregations. This sector also includes museums, libraries, hospitals, conservation groups, private schools, and the like.

City Year Inc., a not-for-profit organization, supports the community service efforts of people in their late teens and early twenties. The organization offers a number of programs in which volunteers can participate. Its signature program, the City Year Youth Corps, invites 1,750 volunteers between the ages of 17 and 24 to commit to a year of full-time community service in activities such as mentoring and tutoring inner-city school children, helping to restore and reclaim public spaces, and staffing youth summer camps. The organization also partners with for-profit corporations such as Timberland, Comcast, and Pepsi to fund and implement its efforts.²³

Public and Collective Ownership of Business

One alternative to private ownership is some form of public ownership owned and operated by a government unit or agency. In the United States, local governments often own parking structures and water systems. The Pennsylvania Turnpike Authority operates a vital highway link across the Keystone State. The federal government operates Hoover Dam in Nevada to provide electricity over a large region.

Collective ownership establishes an organization referred to as a cooperative (or co-op), whose owners join forces to operate all or part of the activities in their firm or industry. Currently, about 100 million people worldwide are employed by cooperatives.²⁴ Cooperatives allow small businesses to pool their resources on purchases, marketing, equipment, distribution, and the like. Discount savings can be split among members. Cooperatives can share equipment and expertise. During difficult economic times, members find a variety of ways to support each other. Ocean Spray is an example of an agricultural cooperative.

Organizing a Corporation

A corporation is a legal structure, but it also requires a certain organizational structure that is more complex than the structure of a sole proprietorship or a partnership. This is why people often think of a corporation as a large entity, even though it does not have to be a specific size.

TYPES OF CORPORATIONS

Corporations fall into three categories: domestic, foreign, and alien. A firm is considered a domestic corporation in the state where it is incorporated. When a company does business in states other than the one where it has filed incorporation papers, it is registered as a foreign corporation in each of those states. A firm incorporated in one nation that operates in another is known as an alien corporation where it operates. Many firms—particularly large corporations with operations scattered around the world—may operate under all three of these designations.

THE CORPORATE CHARTER

Each state has a specific procedure for incorporating a business. Most states require at least three incorporators—the individuals who create the corporation. In addition, the new corporation must select a name that is different from names used by other businesses. FIGURE 5.5 lists the ten elements that most states require for chartering a corporation.

The information provided in the articles of incorporation forms the basis on which a state grants a corporate charter, which is the legal document that formally establishes a corporation. After securing the charter, the owners prepare the company's bylaws, which describe the rules and procedures for its operation.

CORPORATE MANAGEMENT

Regardless of its size, every corporation has levels of management and ownership. FIGURE 5.6 illustrates those that are typical—although a smaller firm might not contain all five of these. These levels range from stockholders down to supervisory management.

STOCK OWNERSHIP AND STOCKHOLDER RIGHTS

At the top of Figure 5.6 are stockholders. They buy shares of stock in the corporation, becoming part owners. Some companies, such as family businesses, are owned by relatively few stockholders, and the stock is generally unavailable to outsiders. In such a firm, known as a private, closed, or closely held corporation, the stockholders also control and manage all of the company's activities. S. C. Johnson & Son, Bose Corporation, and W. L. Gore & Associates are examples of closely held corporations.

In contrast, an open corporation, also called a publicly held corporation, sells stock to the general public, establishing diversified ownership and often leading to a broader scope of operations than those of a closed corporation. Publicly held corporations usually hold annual stockholders' meetings. During these meetings, managers report on corporate activities, and stockholders vote on any decisions that require their approval, including elections of officers. Walmart holds the nation's largest stockholder meeting at the University of Arkansas Bud Walton Arena; approximately 16,000 people attend.

Stockholders' role in the corporation depends on the class of stock they own. Shares are usually classified as common or preferred stock. Although owners of preferred stock have limited voting rights, they are entitled to receive dividends before holders of common stock. If the corporation is dissolved, they have first claims on assets, once debtors are repaid. Owners of common stock have voting rights but only residual claims on the firm's assets, which means they are last to receive any income distributions. Because one share is typically worth only one vote, small stockholders generally have little influence on corporate management actions.

BOARD OF DIRECTORS

Stockholders elect a board of directors—the corporation's governing body. The board sets overall policy, authorizes major transactions involving the corporation, and hires the chief executive officer (CEO). Most boards include both inside directors (corporate executives) and outside directors—people who are not otherwise employed by the organization. Sometimes the corporation's top executive also chairs the board. Generally, outside directors are also stockholders, so they have a financial stake in the company's performance.

CORPORATE OFFICERS AND MANAGERS

The CEO and other members of top management—such as the chief operating officer (COO), chief financial officer (CFO), and the chief information officer (CIO)—make most major corporate decisions. Managers at the middle management level handle the company's ongoing operational functions. At the first tier of management, supervisory personnel coordinate day-to-day operations, assign specific tasks to employees, and evaluate job performance.

Today's CEOs and CFOs are bound by stricter regulations than in the past. They must verify in writing the accuracy of their firm's financial statements, and the process for nominating candidates for the board has become more complex. In short, more checks and balances are in place for the governance of corporations.

When Businesses Join Forces

Today's business environment contains many complex relationships among businesses as well as not-for-profit organizations. Two firms may team up to develop a product or co-market products. One company may buy out another. Large corporations may split into smaller units. The list of alliances is as varied as the organizations themselves, but the major trends in corporate ownership include mergers and acquisitions and joint ventures.

MERGERS AND ACQUISITIONS (M&A)

In recent years, mergers and acquisitions among U.S. corporations hit an all-time high. Airlines, financial institutions, telecommunications companies, and media corporations are just a few of the types of businesses that merged into giants. For example, American Airlines merged with US Airways to form one entity known as American Airlines. The merger will create savings and new revenue as the two companies consolidate. Together, the airlines form the largest carrier in the world.²⁵

The terms merger and acquisition are often used interchangeably, but their meanings are different. In a merger, two or more firms combine to form one company. In an acquisition, one firm purchases the other. This means that not only does the buyer acquire the firm's property and assets; it also takes on any debt obligations. The recent acquisition of Lucas Films by the Disney Corporation is an example. Acquisitions also occur when one firm buys a division or subsidiary from another firm. For example, a private equity firm recently purchased the subsidiary GE Healthcare Strategic Sourcing from GE Healthcare.²⁶

Mergers can be classified as vertical, horizontal, or conglomerate. A vertical merger combines firms operating at different levels in the production and marketing process—the combination of a manufacturer and a large retailer, for instance. A vertical merger pursues one of two primary goals: (1) to ensure adequate flows of raw materials and supplies needed for a firm's products or (2) to increase distribution. Software giant Microsoft is well known for acquiring small firms that have developed products with strong market potential, such as Teleo, a provider of voice over Internet protocol (VoIP) software and services that can be used to make phone calls via the Internet.

A horizontal merger joins firms in the same industry. This is done for the purpose of diversification, increasing customer bases, cutting costs, or expanding product lines. This type of merger is particularly popular in the auto and health care industries. Volkswagen now owns the Porsche brand, while CVS Caremark purchased another firm's Medicaid prescription business.

A conglomerate merger combines unrelated firms. The most common reasons for a conglomerate merger are to diversify, spur sales growth, or spend a cash surplus that might otherwise make the firm a tempting target for a takeover effort. Conglomerate mergers may join firms in totally unrelated industries. General Electric is, in fact, well known for its conglomerate mergers, including its ownership of health care services and household appliances. Experts debate whether conglomerate mergers are beneficial. The usual argument in favor of such mergers is that a company can use its management expertise to succeed in a variety of industries. But the obvious drawback is that a huge conglomerate can spread its resources too thin to be dominant in any one market.

JOINT VENTURES: SPECIALIZED PARTNERSHIPS

A joint venture is a partnership between companies formed for a specific undertaking. Sometimes a company enters into a joint venture with a local firm, sharing the operation's costs, risks, management, and profits with its local partner. This is particularly common when a firm wants to enter into business in a foreign market. DreamWorks Animation recently entered a joint venture with three Chinese firms. The four companies will invest $330 million in a new company, Oriental DreamWorks. Based in Shanghai, the new venture will specialize in family films.²⁷

Joint ventures between for-profit firms and not-for-profit organizations are becoming more and more common. These partnerships provide great benefits for both parties. Not-for-profit organizations receive the funding, marketing exposure, and sometimes manpower they might not otherwise generate.

NOTES

1. Company Web site, www.snagajob.com, accessed April 18, 2013; John Reid Blackwell, “Snagajob Hires New CEO; Founder to Become Chairman,” Richmond Times-Dispatch, March 7, 2013, http://www.timesdispatch.com; Pete Woody, “Corporate Wellness on the Menu at Active RVA Awards Luncheon,” Sports Backers, February 14, 2013, http://www.sportsbackers.org.

2. U.S. Small Business Administration, “Advocacy Small Business Statistics and Research,” http://web.sba.gov/faqs, accessed April 18, 2013.

3. Ibid.

4. U.S. Small Business Administration, “Guide to SBA's Definitions of Small Business,” http://archive.sba.gov, “Table of Small Business Size Standards Matched to North American Industry Classification System Codes,” http://www.sba.gov, accessed April 18, 2013.

5. Gwen Moran, “10 Hot Export Markets for Small Businesses,” Entrepreneur, accessed September 17, 2013, http://www.entrepreneur.com.

6. U.S. Small Business Administration, “Frequently Asked Questions,” http://archive.sba.gov/advo/stats/sbfaq.pdf, April 18, 2013.

7. U.S. Small Business Administration, “Small Business Jobs Act of 2010,” http://www.sba.gov, accessed April 18, 2013; David Ferris, “Law Can Have Big Impact on Small Businesses,” February 1, 2012, http://www.workforce.com.

8. U.S. Small Business Administration, Office for Advocacy “Frequently Asked Questions,” http://www.sba.gov, accessed April 18, 2013.

9. Company Web site, http://www.newsroom.fb.com, accessed April 18, 2013.

10. U.S. Small Business Administration, Office of Advocacy, “Frequently Asked Questions: Advocacy Small Business Statistics and Research,” http://www.sba.gov, accessed April 18, 2013.

11. Nick Reese, “10 Common Pitfalls of New Entrepreneurs—and How to Avoid Them,” Forbes, July 13, 2012, http://www.forbes.com.

12. W. Mark Crain, “The Impact of Regulatory Costs on Small Firms,” Office of Advocacy, U.S. Small Business Administration, http://www.sba.gov, accessed April 18, 2013.

13. U.S. Small Business Administration, “What We Do,” http://www.sba.gov, accessed April 18, 2013.

14. U.S. Small Business Administration, “Mission Statement,” http://www.sba.gov, accessed April 18, 2013.

15. U.S. Small Business Administration, “Loans and Grants,” http://www.sba.gov, accessed April 18, 2013.

16. U.S. Small Business Administration, “Disaster Assistance,” http://www.sba.gov, accessed April 18, 2013.

17. U.S. Small Business Administration, “Small Business Jobs Act of 2010,” http://www.sba.gov, accessed April 18, 2013.

18. U.S. Small Business Administration, “Microloan Program,” http://www.sba.gov, accessed April 18, 2013.

19. Small Business Investor Alliance, “SBIC Program History,” http://www.sbia.org, accessed April 18, 2013.

20. Women Moving Millions, “Facts: Entrepreneurship & Small Business,” http://www.womenmovingmillions.org, accessed April 18, 2013.

21. Associated Press, “BP Seeks to Block Payment of Business Claims under Gulf Spill Settlement,” Fox News, March 15, 2013, http://www.foxnews.com.

22. Lewis Taub, “Maximizing the Benefits of the S Corporation in Turbulent Times,” McGladrey, http://www.mcgladrey.com, accessed May 2, 2013.

23. Organization Web site, “About City Year,” http://www.cityyear.org, accessed April 18, 2013.

24. Organization Web site, National Cooperative Business Association, http://usa2012.coop, accessed April 18, 2013.

25. Mary Schlangenstein, “US Airways Leads AMR Merger to Create Largest Airline,” Bloomberg, February 14, 2013, http://www.bloomberg.com.

26. Rachel Landen, “Private-Equity Firm Buys EHR Subsidiary from GE,” ModernHealthcare.com, March 7, 2013, http://www.modernhealthcare.com.

27. Richard Verrier, “Oriental DreamWorks and Chinese Partners Announce Tibet Movie,” Los Angeles Times, April 20, 2013, http://www.latimes.com; Brookes Barnes, “DreamWorks Animation Forms Studio with Chinese Partners,” The New York Times, February 17, 2012, http://mediacoder.blogs.nytimes.com; Brent Lang, “DreamWorks Animation Announces China Joint Venture,” The Wrap, February 17, 2012, http://www.thewrap.com.