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Week 2 -3

Hospitality Business

Unit 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
Identify the responsibilities and obligations
created by an agency relationship.

The importance of business structure
Common hospitality organizational structures
Common hospitality operating structures
The agency relationship

The Importance of Business


The 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

There are two branches of structure:

Organizational Structure

the legal entity that owns a business

Operating Structure
the relationship between a businesss
ownership and its management

Common Hospitality
Organizational Structures
Sole Proprietorship
General Partnership
Limited Partnership (LP)
C Corporation
S Corporation
Limited Liability Company (LLC)

Sole Proprietorship
A 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
There is no restriction to transfer the

General Partnership
Similar 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
There are two classes of owners:
Limited Partner

Invests money in the business and liable

only to extent of investment.
General or Managing Partner
Control of the operation and liable for its
Profits are taxed as individual rate

C Corporation
Corporation 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 rate
Profits are taxed as corporate rate.
Dividends are taxed as individual rate.

S Corporations
S 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

The company is responsible for the debts.
Members are responsible for the taxes.
Profits are taxed as individual rate

Common Hospitality Operation

Management Contracts
Condo Hotel

The owner is responsible for its day-to-day


Franchise 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.

The 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

REIT Real Estate Investment Trust
The owners as REIT can own properties but in

most case are prohibited from operating it.

Condo Hotels
A multiple unit complex that can have hotel,

office and apartment.

The Fractional Ownership is the way that
individuals buy some portion (unit) of the
The fractional owners of the units in the
condo hotels can place the units in a rental
The fractional owners can receive a revenue
from their units according to the agreement.

The Agency
The relationship between businesses and their

hired help usually takes the form of one of the

three concepts:
Employer-employee relationship, where the
servants performance is controlled by the master.
Agent- Principal

An 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 contractor
a 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-Principal
The 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

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.
Duty of good faith includes total truthfulness, absolute
integrity, and total fidelity to the principals interest.

Thank you !!!

Vhea Angeli