1. 6
Chapter
Business Ownership
and Operations pp

2. Learning Objectives After completing this chapter, you’ll be able to:
Name the three forms of business ownership.
Compare the types of ownership.
continued

3. Learning Objectives After completing this chapter, you’ll be able to:
Describe alternative ways to do business.
Identify the different types of businesses.

4. Why It’s Important
You need to understand business ownerships and operations before starting a business.

5. Key Words sole proprietorship unlimited liability partnership
corporation
stock
limited liability
franchise
continued

6. Key Words nonprofit organization cooperative producer processors
manufacturers
intermediaries
continued

7. Key Words
wholesaler
retailer

8. Types of Business Ownership
The three different ways you can own a business are:
Sole proprietorship
Partnership
Incorporation

9. Sole Proprietorship
A sole proprietorship is a business owned by only one person.

10. Sole Proprietorship The advantages to having your own business are:
It’s easy to start
You get to be your own boss
You get to keep all the profits
The taxes are usually low

11. Sole Proprietorship The disadvantages to having your own business are:
You have to pay for everything yourself
continued

12. Sole Proprietorship
You might have to use your personal savings or borrow money from the bank
You might lack business skills

13. Sole Proprietorship
A serious disadvantage to owning a sole proprietorship is that you have unlimited liability, or full responsibility for your company’s debts.

14. Partnership
A partnership is a business owned by two or more persons who share the risks and rewards.

15. Partnership
To start a partnership you need to draw up a partnership agreement, which is a contract that outlines the rights and responsibilities of each partner.

16. Partnership The advantages to partnership are:
You might need only a license to start and have to pay taxes only on your personal profits.
Each of your partners can contribute money to start the business.
continued

17. Partnership
Banks are often more willing to lend money to partnerships than sole proprietorships.
Your partners can bring different skills to the business.

18. Partnership The disadvantages to partnership are:
You not only share the risks with your partners, you also share the profits.
continued

19. Partnership You might not get along with your partners.
You share unlimited legal and financial liability with your partners.

20. Graphic Organizer Similarities and Differences Between
Partnerships and Sole Proprietorships
Partnerships
Both
Sole Proprietorships
Quicker decision making
Owner keeps all profits
Owner is own boss
Relatively easy to get credit
Shared decision making
Pride in owning and running business
Easy to set up
Low taxes
Unlimited liability for debts
Huge time demands
Increased diversity of experience
Shared losses
Combined funds

21. Making an Ethical Decision
What are the advantages and disadvantages of “going solo” in a business venture?
How can having a partner help launch and grow a business? Are there any drawbacks?
continued

22. Making an Ethical Decision
Are you obligated to invite a person into a partnership if that person was involved in inventing a product you want to sell? What if that person decided to start the business without you?

23. Corporation
A corporation is a business owned by many people but treated by law as one person.

24. Corporation
To form a corporation, you need to get a corporate charter from the state your headquarters is in.

25. Corporation
To raise money, you can sell stock, or shares of ownership in your corporation.

26. Corporation
For each share of common stock, the stockholder gets a share of the profits and a vote on how the business is run.
You also must have a board of directors who control the corporation.

27. Corporation
A major advantage of a corporation is its limited liability.
If your company loses money, the stockholders lose only what they invested.

28. Corporation
Another advantage is that the corporation doesn’t end if the owners sell their shares.

29. Corporation
A disadvantage of a corporation is that you often have to pay more taxes.

30. Corporation
The government closely regulates corporations.

31. Corporation
It is more difficult to start a corporation than a sole proprietorship or a partnership and running a corporation can be much more complicated.

32. Figure
6.1
GENERATIONS OF FAMILY-OWNED BUSINESSES
Family-owned businesses are sometimes kept in the family for more than one generation.
What percentage of families have had their family-owned businesses for two or more generations?

33. What are some of the advantages of a sole proprietorship?
Fast Review
What are some of the advantages of a sole proprietorship?
What is the difference between a sole proprietorship and a partnership?
continued

34. What are the disadvantages of a corporation?
Fast Review
If a partner makes a bad business decision, what responsibility do the other partners have?
What are the disadvantages of a corporation?

35. Alternative Ways to Do Business
Franchises, cooperatives, and nonprofit organizations offer you other ways to do business.

36. Franchise
A franchise is a contractual agreement to sell a company’s products or services in a designated geographic area.

37. Franchise
To run a franchise you have to invest money and pay the franchisor an annual fee or a share of the profits.
In return, the franchisor offers a well-known name and a business plan.

38. Franchise
You can operate a franchise yourself, as a sole proprietor, as a partnership with someone else, or even as a corporation.

39. Franchise
An advantage of opening a franchise is that it’s easy to start.
The name of the parent company can be a big draw for customers.

40. Franchise
The disadvantage of running a franchise is that the franchisor is often very strict about how the business is run.

41. Nonprofit Organization
A nonprofit organization is a type of business that focuses on providing a service rather than making a profit.

42. Nonprofit Organization
Like a corporation, a nonprofit organization has to register with the government and might be run by a board of directors.

43. Nonprofit Organization
Because it doesn’t make a profit, a nonprofit organization doesn’t have to pay taxes.

44. Nonprofit Organization
Donors don’t receive dividends like investors, but they can deduct their donations from their taxes.

45. Cooperative
A cooperative is an organization owned and operated by its members for the purpose of saving money on the purchase of certain goods and services.

46. Cooperative
A cooperative is like a corporation in that it exists as a separate entity from the individual businesses.

47. Cooperative
A cooperative can sell stock and choose a board of directors to run it.
Cooperatives pay less in taxes than regular corporations do.

48. Cooperative
Cooperatives can save money by buying insurance, supplies, and advertising as a group.

49. What are some examples of franchise businesses?
Fast Review
What are some examples of franchise businesses?
What types of assistance does the franchisor give a franchisee?
continued

50. How is a nonprofit organization like and unlike a corporation?
Fast Review
How is a nonprofit organization like and unlike a corporation?
What are some advantages of a cooperative?

51. Manufacturing Products
Compaq Computers and Cisco Systems don’t build their own products anymore. These companies rely on Flextonics, a company that specializes in manufacturing electronics, to build their equipment.
continued

52. Manufacturing Products
This allows Compaq and Cisco to focus on creating new products. Flextonics has grown into a global contractor that produces $10.5 billion a year in electronic gizmos.
continued

53. Analyze
What do Compaq Computers and Cisco Systems give up when they rely on an outside manufacturer?

54. Types of Businesses
One way to classify businesses is to group them by the kind of products they provide:
Producing raw goods
Processing raw goods
continued

55. Types of Businesses Manufacturing goods from raw or processed goods
Distributing goods
Providing services

56. Producers
A producer is a business that gathers raw products in their natural state.
Raw goods are materials gathered in their original state from natural resources such as land and water.

57. Processors
Processors change raw materials into more finished products.
Processed goods are made from raw goods and may require further processing.

58. Manufacturers
Manufacturers are businesses that make finished products out of processed goods.
The finished products need no further processing and are ready for market.

59. Intermediaries
An intermediary is a business that moves goods from one business to another.
It buys goods, stores them, and then resells them.

60. Intermediaries
A wholesaler, also known as a distributor, distributes goods.

61. Intermediaries
Wholesalers buy goods from manufacturers in huge quantities and resell them in smaller quantities to their customers, usually other companies.

62. Intermediaries
A retailer purchases goods from a wholesaler and resells them to the consumer, or the final buyer of the goods.

63. Service Businesses
Service businesses provide services rather than goods.
Services are the products of a skill or an activity, such as hairstyling and car repair.

64. Service Businesses
Some service businesses meet needs, such as medical clinics and law firms.
Some provide conveniences, such as taxi companies and copy shops.

65. What is the difference between a producer and a processor?
Fast Review
What is the difference between a producer and a processor?
What does a manufacturer do with raw or processed goods?
continued

66. What does an intermediary do? Give examples of service businesses.
Fast Review
What does an intermediary do?
Give examples of service businesses.

67. What’s the aim of joining forces and starting an organization?
What’s the benefit of going into business for yourself?
continued

68. Can a business have a contractual agreement with its customers?

69. 6
End of Chapter
Business Ownership and Operations