1. Business Ownership and Operations
Chapter 6

2. 6.1 Types of Business Ownership
Sole Proprietorship
Partnerships
Corporations

3. Organizing a Business
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.

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 permit
Sole proprietors are in charge
Make all decisions
Keep all the profits
Income taxes are lower than that of corporations
Income only taxed once
Lower tax rate

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

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

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

10. Disadvantages of Partnerships
All partners share risks
Partners do not get along all the time
Partners decide to leave, must reorganize
Partners share unlimited legal and financial liability
All 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 located
Owners sell stocks
Stocks-shares in the company
Must have a board of directors

12. Advantages of a Corporation
Limited liability
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

13. Disadvantages of a Corporation
Pay taxes on their income
Stockholders pay taxes on profits issued to them—double taxation
S corporations and limited liability companies don’t pay double taxation
Government regulates
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)
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 Businesses
Producers
Processors
Manufacturers
Intermediaries and wholesalers
Retailers and Service Businesses
Functions of Businesses
Production and Procurement
Marketing
Management
Finance and Accounting

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

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

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

19. Intermediaries and Wholesalers
Moves goods from one business to another
Buys goods, stores them, and then resells them
Wholesalers 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 Stations
Record stores
Auto dealers
Service businesses performs tasks.
Medical clinics
Law 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. Marketing
The 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. Management
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.
Accounting is maintaining and checking records, handling bills, and preparing financial reports.