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Business Ownership and Operations Chapter 6. 6.1 Types of Business Ownership Sole Proprietorship Sole Proprietorship Partnerships Partnerships Corporations.

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Presentation on theme: "Business Ownership and Operations Chapter 6. 6.1 Types of Business Ownership Sole Proprietorship Sole Proprietorship Partnerships Partnerships Corporations."— Presentation transcript:

1 Business Ownership and Operations Chapter 6

2 6.1 Types of Business Ownership Sole Proprietorship Sole Proprietorship Partnerships Partnerships Corporations Corporations

3 Organizing a Business As part of a business plan, entrepreneurs must decide which type of business best fits their situation. As part of a business plan, entrepreneurs must decide which type of business best fits their situation. During the life of a business, the form of business can change, usually when a business is growing. During the life of a business, the form of business can change, usually when a business is growing.

4 Sole Proprietorships A business owned by one person. A business owned by one person. About ¾ (75%) of all businesses in the United States are sole proprietorships. About ¾ (75%) of all businesses in the United States are sole proprietorships.

5 United States Sole Proprietorships, Partnerships, and Corporations

6 Advantages of Sole Proprietorships Easy to do, may only need a license or permit Easy to do, may only need a license or permit Sole proprietors are in charge Sole proprietors are in charge Make all decisions Make all decisions Keep all the profits Keep all the profits Income taxes are lower than that of corporations Income taxes are lower than that of corporations Income only taxed once Income only taxed once Lower tax rate Lower tax rate

7 Disadvantages of Sole Proprietorship Unlimited liability Unlimited liability Owner responsible for company debts Owner responsible for company debts Limited access to credit, lenders are reluctant to lend money Limited access to credit, lenders are reluctant to lend money Many fail because they run out of money Many fail because they run out of money Person in charge may not have all skills necessary Person in charge may not have all skills necessary Ends when owner dies Ends when owner dies

8 Partnerships Owned by two or more people Owned by two or more people Share the risks Share the risks Partnership agreement is necessary Partnership agreement is necessary Rights and responsibilities of each partner Rights and responsibilities of each partner

9 Advantages of a Partnership Easy to start Easy to start Potential partners may need to obtain a license Potential partners may need to obtain a license Easier to obtain capital Easier to obtain capital Each partner contributes money to start Each partner contributes money to start Banks are more willing to lend money Banks are more willing to lend money Not dependent on one person Not dependent on one person Income only taxed once Income only taxed once Each partner brings different skills Each partner brings different skills

10 Disadvantages of Partnerships All partners share risks All partners share risks Partners do not get along all the time Partners do not get along all the time Partners decide to leave, must reorganize Partners decide to leave, must reorganize Partners share unlimited legal and financial liability Partners share unlimited legal and financial liability All partners are responsible if the other makes a bad decision All partners are responsible if the other makes a bad decision

11 Corporations Registered by a state Registered by a state Operates apart from its owners Operates apart from its owners Owners must get a corporate charter, a license to run a corporation, from the state where their main office is located Owners must get a corporate charter, a license to run a corporation, from the state where their main office is located Owners sell stocks Owners sell stocks Stocks-shares in the company Stocks-shares in the company Must have a board of directors Must have a board of directors

12 Advantages of a Corporation Limited liability Limited liability Ability to raise money when people buy stock in the company Ability to raise money when people buy stock in the company Does not end if one owner dies, deceased owners shares are sold, business continues Does not end if one owner dies, deceased owners shares are sold, business continues

13 Disadvantages of a Corporation Pay taxes on their income Pay taxes on their income Stockholders pay taxes on profits issued to them—double taxation Stockholders pay taxes on profits issued to them—double taxation S corporations and limited liability companies don’t pay double taxation S corporations and limited liability companies don’t pay double taxation Government regulates Government regulates Difficult and costly to start Difficult and costly to start

14 Other ways to Organize a Business Cooperative- organization owned and operated by its members, they pool their resources together, purpose is to save money on purchases of certain goods and services. (Ocean Spray) Cooperative- organization owned and operated by its members, they pool their resources together, purpose is to save money on purchases of certain goods and services. (Ocean Spray) Nonprofit Organization- focuses on providing a service, but not to make a profit. Must register with the government. Do not pay taxes. Nonprofit Organization- focuses on providing a service, but not to make a profit. Must register with the government. Do not pay taxes. Franchise- a contractual agreement to use the name and sell the product or service of a company in a geographic area. Have to invest money and pay a franchise fee or a share in the profits. The franchiser returns the favor by giving the product and the business plan. Franchise- a contractual agreement to use the name and sell the product or service of a company in a geographic area. Have to invest money and pay a franchise fee or a share in the profits. The franchiser returns the favor by giving the product and the business plan.

15 6.2 Types and Functions of Businesses Types of Businesses Types of Businesses Producers Producers Processors Processors Manufacturers Manufacturers Intermediaries and wholesalers Intermediaries and wholesalers Retailers and Service Businesses Retailers and Service Businesses Functions of Businesses Functions of Businesses Production and Procurement Production and Procurement Marketing Marketing Management Management Finance and Accounting Finance and Accounting

16 Producers Gathers raw goods Gathers raw goods Ex: Ex: Agriculture Agriculture Mining Mining Fishing Fishing Forestry Forestry

17 Processors Changes raw materials into more finished products. Changes raw materials into more finished products. Ex: Ex: Sugar cane is turned into sugar Sugar cane is turned into sugar Crude oil into gasoline Crude oil into gasoline Iron ore into steel Iron ore into steel

18 Manufacturers Make finished products out of processed goods. Make finished products out of processed goods. Ex: Ex: Cars Cars CDs CDs Computers Computers

19 Intermediaries and Wholesalers Moves goods from one business to another Moves goods from one business to another Buys goods, stores them, and then resells them Buys goods, stores them, and then resells them Wholesalers distribute goods. Wholesalers distribute goods. Wholesalers divide the large quantities into smaller ones and sells them to retailers. Wholesalers divide the large quantities into smaller ones and sells them to retailers.

20 Retailers and Service Businesses Purchases goods from a wholesaler and sells them to consumers. Purchases goods from a wholesaler and sells them to consumers. Ex: Ex: Service Stations Service Stations Record stores Record stores Auto dealers Auto dealers Service businesses performs tasks. Service businesses performs tasks. Ex: Ex: Medical clinics Medical clinics Law firms Law firms

21 Production and Procurement Production is process of creating, expanding, manufacturing, or improving goods and services. Production is process of creating, expanding, manufacturing, or improving goods and services. Procurement is the buying and reselling of goods that have already been produced. Procurement is the buying and reselling of goods that have already been produced.

22 Marketing The process of planning, pricing, promoting, selling, and distributing ideas, goods, and services. The process of planning, pricing, promoting, selling, and distributing ideas, goods, and services. Getting consumers to buy a product or service. Getting consumers to buy a product or service. Decisions based on market research. Decisions based on market research.

23 Management The process of achieving company goals by planning, organizing, leading, controlling, and evaluating the effective use of resources. The process of achieving company goals by planning, organizing, leading, controlling, and evaluating the effective use of resources.

24 Finance and Accounting Finance is the business or art of money management. Analyzing financial statements to make future decisions. Finance is the business or art of money management. Analyzing financial statements to make future decisions. Accounting is maintaining and checking records, handling bills, and preparing financial reports. Accounting is maintaining and checking records, handling bills, and preparing financial reports.


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