8 Types of Business Ownership The three different ways you can own a business are:Sole proprietorshipPartnershipIncorporation
9 Sole ProprietorshipA 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 startYou get to be your own bossYou get to keep all the profitsThe taxes are usually low
11 Sole Proprietorship The disadvantages to having your own business are: You have to pay for everything yourselfcontinued
12 Sole ProprietorshipYou might have to use your personal savings or borrow money from the bankYou might lack business skills
13 Sole ProprietorshipA serious disadvantage to owning a sole proprietorship is that you have unlimited liability, or full responsibility for your company’s debts.
14 PartnershipA partnership is a business owned by two or more persons who share the risks and rewards.
15 PartnershipTo 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 PartnershipBanks 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 ProprietorshipsPartnershipsBothSole ProprietorshipsQuicker decision makingOwner keeps all profitsOwner is own bossRelatively easy to get creditShared decision makingPride in owning and running businessEasy to set upLow taxesUnlimited liability for debtsHuge time demandsIncreased diversity of experienceShared lossesCombined 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 CorporationA corporation is a business owned by many people but treated by law as one person.
24 CorporationTo form a corporation, you need to get a corporate charter from the state your headquarters is in.
25 CorporationTo raise money, you can sell stock, or shares of ownership in your corporation.
26 CorporationFor 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 CorporationA major advantage of a corporation is its limited liability.If your company loses money, the stockholders lose only what they invested.
28 CorporationAnother advantage is that the corporation doesn’t end if the owners sell their shares.
29 CorporationA disadvantage of a corporation is that you often have to pay more taxes.
30 CorporationThe government closely regulates corporations.
31 CorporationIt is more difficult to start a corporation than a sole proprietorship or a partnership and running a corporation can be much more complicated.
32 Figure6.1GENERATIONS OF FAMILY-OWNED BUSINESSESFamily-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 ReviewWhat 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 ReviewIf 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 FranchiseA franchise is a contractual agreement to sell a company’s products or services in a designated geographic area.
37 FranchiseTo 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 FranchiseYou can operate a franchise yourself, as a sole proprietor, as a partnership with someone else, or even as a corporation.
39 FranchiseAn 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 FranchiseThe 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 CooperativeA 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 CooperativeA cooperative is like a corporation in that it exists as a separate entity from the individual businesses.
47 CooperativeA cooperative can sell stock and choose a board of directors to run it.Cooperatives pay less in taxes than regular corporations do.
48 CooperativeCooperatives can save money by buying insurance, supplies, and advertising as a group.
49 What are some examples of franchise businesses? Fast ReviewWhat 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 ReviewHow 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 AnalyzeWhat do Compaq Computers and Cisco Systems give up when they rely on an outside manufacturer?
54 Types of BusinessesOne way to classify businesses is to group them by the kind of products they provide:Producing raw goodsProcessing raw goodscontinued
55 Types of Businesses Manufacturing goods from raw or processed goods Distributing goodsProviding services
56 ProducersA 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 ProcessorsProcessors change raw materials into more finished products.Processed goods are made from raw goods and may require further processing.
58 ManufacturersManufacturers are businesses that make finished products out of processed goods.The finished products need no further processing and are ready for market.
59 IntermediariesAn intermediary is a business that moves goods from one business to another.It buys goods, stores them, and then resells them.
60 IntermediariesA wholesaler, also known as a distributor, distributes goods.
61 IntermediariesWholesalers buy goods from manufacturers in huge quantities and resell them in smaller quantities to their customers, usually other companies.
62 IntermediariesA retailer purchases goods from a wholesaler and resells them to the consumer, or the final buyer of the goods.
63 Service BusinessesService businesses provide services rather than goods.Services are the products of a skill or an activity, such as hairstyling and car repair.
64 Service BusinessesSome 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 ReviewWhat 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 ReviewWhat 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 6End of ChapterBusiness Ownership and Operations