Chapter 6 Intro to Business Business Structures

Types of Business Ownership Three types of business ownership: Sole Proprietorship-is a business owned by one person. Most are small firms-not many employees. More than 2/3 rds of US businesses are operated as sole proprietorships. Partnership-is a business owned and managed by a small group, often not more than two or three people who become partners. Written agreement-these partners share the profits or losses and have unlimited liability for the debt of their business. Corporation-is a business owned by a number of people and operated under written permission from the state in which it is located. The written permission is called a certificate of incorporation (sometimes called articles of incorporation)

Types of Business Ownership-cont. The corporation acts as a single individual on behalf of its owners. By buying shares of stock, people become owners of corporations. They are called shareholders, also called stockholders. Corporations are legal entities with an existence and life separate from its owners. The size and nature of a business are key factors in choosing the best type of ownership for it.

Managing a Successful Business Managers are the employees who are responsible for coordinating resources with a business-human, capital and natural. Management activities are focused in 5 areas. Planning-includes thinking, gathering and analyzing information and then making decisions about all phases of the business Organizing-the process of determining what work has to be done and who is to do each job. Staffing-includes all of the activities involved in finding, selecting, hiring, training, appraising, and rewarding the employees of the business. Leading-directing the work of the employees. Effective leaders inspire workers to willingly perform their jobs and accept their share of responsibility for accomplishing the goals of the business. Requires good communication and human relation skills.

Managing a Successful Business-cont. Controlling-comparing what actually happens with what was planned. Controlling also means using the standards set up in the planning stage. Controlling is directly related to planning. Forming a Partnership The name of the business The initial investment of all partners The salaries of the partners The proportion that the partners will share profits and losses after salaries are paid Responsibilities of all partners Liquidation, distribution, and purchase rights of remaining partners in the event of death or withdrawal of a partner (either of which terminates the partnership) 2/10-7th

Managing a Successful Business-cont. Legal responsibilities of a partnership Each partner can be held personally responsible for all debts Including debts incurred by a partner without the consent of the other partners Each partner is bound by the business agreements the other partners make Forming a Corporation Board of Directors-is a group with responsibility to guide the operations of a corporation. (compare to school board) Usually selected by a vote of the stockholders. Board of Directors are in the highest position of authority and will make policy decisions. Select the executive officers of the corporation (CEO) These officers are responsible for the day-to-day operations of the business.

Managing a Successful Business-Corporation Dividends-is the share of the corporate profits that are to be shared by the stockholders. The total amount to be distributed as dividends is determined by the board of directors. The total dividends are then distributed per share of stock ownership. Specialized forms of Business Organizations Franchise-is a written contract granting permission to sell someone else’s product or service in a prescribed manner, for a certain period of time, and in a certain location or area. Franchisee-is the party who has received permission from the parent company to sell the product or service. Franchisor-is the parent company granting permission to sell their product or service.

Specialized forms of Business Organizations Franchises usually require a significant investment of capital by the franchisee to get started. For it’s service, the franchise usually collects a percentage of sales or agreed upon fee from the franchisee each year. Cooperative-is owned by the members it serves and is managed in their interest. Consumers cooperative-organization of consumers who buy goods and services more cheaply together than each person could individually. Producers cooperative-producers(usually farmers) work together for greater bargaining power in selling their products. Must be approved by the state May sell shares to it’s members A board of directors may be chosen to guide the cooperative

Cooperative-cont. Non Profit Corporations Members may be allowed to vote based on the number of shares they own or based upon the amount of service the member has bought from the cooperative Profits may be refunded to members or may be kept to expand the business. Non Profit Corporations Municipal Corporation or municipality-is an incorporated town. It has its own ; officials and central government, its own schools, its own police, and fire department, its own public works departments Its own recreation department

Non Profit Corporation-cont. A Municipal corporation Levies taxes Passes rules and regulations to operate effectively It buys goods and services just like any other corporation It provides services to its citizens with money collected from taxes rather than from making a profit It is a nonprofit organization and there is no stock ownership. Other examples of non-profit corporations are: Private colleges and universities American Red Cross Boy Scouts of America