2 6.1 Types of Business Ownership Sole ProprietorshipPartnershipsCorporations
3 Organizing a BusinessAs 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.
4 Sole Proprietorships A business owned by one person. 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 permitSole proprietors are in chargeMake all decisionsKeep all the profitsIncome taxes are lower than that of corporationsIncome only taxed onceLower tax rate
7 Disadvantages of Sole Proprietorship Unlimited liabilityOwner responsible for company debtsLimited access to credit, lenders are reluctant to lend moneyMany fail because they run out of moneyPerson in charge may not have all skills necessaryEnds when owner dies
8 Partnerships Owned by two or more people Share the risks Partnership agreement is necessaryRights and responsibilities of each partner
9 Advantages of a Partnership Easy to startPotential partners may need to obtain a licenseEasier to obtain capitalEach partner contributes money to startBanks are more willing to lend moneyNot dependent on one personIncome only taxed onceEach partner brings different skills
10 Disadvantages of Partnerships All partners share risksPartners do not get along all the timePartners decide to leave, must reorganizePartners share unlimited legal and financial liabilityAll partners are responsible if the other makes a bad decision
11 Corporations Registered by a state 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 locatedOwners sell stocksStocks-shares in the companyMust have a board of directors
12 Advantages of a Corporation Limited liabilityAbility to raise money when people buy stock in the companyDoes not end if one owner dies, deceased owners shares are sold, business continues
13 Disadvantages of a Corporation Pay taxes on their incomeStockholders pay taxes on profits issued to them—double taxationS corporations and limited liability companies don’t pay double taxationGovernment regulatesDifficult 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)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.
15 6.2 Types and Functions of Businesses Types of BusinessesProducersProcessorsManufacturersIntermediaries and wholesalersRetailers and Service BusinessesFunctions of BusinessesProduction and ProcurementMarketingManagementFinance and Accounting
16 ProducersGathers raw goodsEx:AgricultureMiningFishingForestry
17 Processors Changes raw materials into more finished products. Ex: Sugar cane is turned into sugarCrude oil into gasolineIron ore into steel
18 Manufacturers Make finished products out of processed goods. Ex: Cars CDsComputers
19 Intermediaries and Wholesalers Moves goods from one business to anotherBuys goods, stores them, and then resells themWholesalers distribute goods.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.Ex:Service StationsRecord storesAuto dealersService businesses performs tasks.Medical clinicsLaw firms
21 Production and Procurement 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.
22 MarketingThe process of planning, pricing, promoting, selling, and distributing ideas, goods, and services.Getting consumers to buy a product or service.Decisions based on market research.
23 ManagementThe 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.Accounting is maintaining and checking records, handling bills, and preparing financial reports.