Hospitality Business Structures

Hospitality Business StructuresWeek 2 -3Unit Objectives:Explain the importance in selecting the proper organizational and operational structures for a hospitality business.Identify various organizational business structures used in the hospitality industry.Identify the most common operational business structures used in the hospitality industry.Identify the responsibilities and obligations created by an agency relationship.TopicsThe importance of business structureCommon hospitality organizational structuresCommon hospitality operating structuresThe agency relationshipThe Importance of Business StructureThe businesses and the owners would be treated differently in law terms when they have different business structures. The owner has to decide which structure works to the advantage of both the business and its owners.There are two branches of structure:

Organizational Structurethe legal entity that owns a businessOperating Structurethe relationship between a businesss ownership and its managementCommon Hospitality Organizational StructuresSole ProprietorshipGeneral PartnershipLimited Partnership (LP)C CorporationS CorporationLimited Liability Company (LLC)

Sole ProprietorshipA single individual owns all of the business and is responsible for all of its debts.Profits in sole proprietorship are taxed at the same rate as the owners personal income tax.There is no restriction to transfer the ownership.General PartnershipSimilar to Proprietorship but there are two or more owners.The owners are also jointly and severally liable for its debts.Profits are taxed as individual rate.The ownership can be transferred per partnership agreement.Limited Partnership (LP)There are two classes of owners:Limited PartnerInvests money in the business and liable only to extent of investment. General or Managing PartnerControl of the operation and liable for its debts.

Profits are taxed as individual rate

C CorporationCorporation or C Corporation

Group of people invest together.The corporation is responsible for the debts.The structure deals with double taxation:Corporate rate and Individual rateProfits are taxed as corporate rate.Dividends are taxed as individual rate.S CorporationsS Corporation can avoid the double taxation.There are some requirement to maintain S Corporations status.The corporation is responsible for the debts.But the shareholders are responsible to pay the taxes.Profits are taxed as individual rate.Limited Liability Company (LLC) Group of people invest together called members.The company is responsible for the debts.Members are responsible for the taxes.Profits are taxed as individual rate

Common Hospitality Operation StructuresOwner-operatorFranchiseManagement ContractsREITCondo HotelOwner-OperatorThe owner is responsible for its day-to-day operation.FranchiseFranchise is a contract between a Franchisor and Franchisee to allow the franchise to run a business with the same name, logo and system of business.Franchisor (parent company)The person or business that has sold and/or granted a franchise.Franchisee (operating company)The person or business that has purchased and/or received a franchise.Management ContractsThe owner hires the management company to operate a business.The management contract is a legal agreement that defines the responsibilities of a business owner and the management company.REITREIT Real Estate Investment TrustThe owners as REIT can own properties but in most case are prohibited from operating it.Condo HotelsA multiple unit complex that can have hotel, office and apartment. The Fractional Ownership is the way that individuals buy some portion (unit) of the properties.The fractional owners of the units in the condo hotels can place the units in a rental pool.The fractional owners can receive a revenue from their units according to the agreement.The Agency RelationshipThe relationship between businesses and their hired help usually takes the form of one of the three concepts:Master-servantEmployer-employee relationship, where the servants performance is controlled by the master.Agent- PrincipalAn agent is empowered to act on behalf of the principal, with some degree of personal discretion, the principal is ordinary responsible for the conduct and obligations undertaken by the agent.Independent contractora person or entity that contracts with another to perform a particular task but whose work is not directed or controlled by the hiring party. The employer has very little control over the conduct of the independent contractor.The Agent-PrincipalThe principals are held responsible for the actions of their agents, agents have fiduciary responsibility to act in the best interest of their principals.Fiduciary responsibility the requirement that agents act in the best interest of their principals.The duties of an agent generally include:

Utmost care the agent is bound to a very high standard to ensure the maximum protection of the principals interest.Integrity the agent must act with fidelity and honesty.Honest and duty of full disclosure of all facts that could influence in any way the principals decisions, actions, or willingness to follow the advice of the agent.LoyaltyDuty of good faith includes total truthfulness, absolute integrity, and total fidelity to the principals interest.

Thank you !!!GROUP 1JerewinaVhea AngeliAnseiJhessaRochelleChristian