Business%20Ownership%20and%20Operations

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Business Ownership and Operations

• Chapter 6

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6.1 Types of Business Ownership

• Sole Proprietorship
• Partnerships
• Corporations

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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 for of
  business can change, usually when a business is
  growing.

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Sole Proprietorships

• A business owned by one person.
• About ¾ (75) of all businesses in the United
  States are sole proprietorships.

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United States Sole Proprietorships, Partnerships,
and Corporations
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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

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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

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Partnerships

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

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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

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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

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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

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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

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Disadvantages of a Corporation

• Pay taxes on their income
• Stockholders pay taxes on profits issued to
  themdouble taxation
• S corporations and limited liability companies
  dont pay double taxation
• Government regulates
• Difficult and costly to start

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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.

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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

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Producers

• Gathers raw goods
• Ex
• Agriculture
• Mining
• Fishing
• Forestry

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Processors

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

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Manufacturers

• Make finished products out of processed goods.
• Ex
• Cars
• CDs
• Computers

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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.

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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.
• Ex
• Medical clinics
• Law firms

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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.

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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.

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Management

• The process of achieving company goals by
  planning, organizing, leading, controlling, and
  evaluating the effective use of resources.

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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.