Business Ownership

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6
Chapter
Business Ownership and Operations
pp. 84-97
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Learning Objectives
After completing this chapter, youll be able to

1. Name the three forms of business ownership.

1. Compare the types of ownership.

1. Describe alternative ways to do business.

1. Identify the different types of businesses.

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Key Words
sole proprietorship unlimited liability partnershi
p corporation stock limited liability Franchise no
nprofit organization
continued
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Key Words
cooperative producer processors manufacturers Inte
rmediaries wholesaler retailer
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Types of Business Ownership
The three different ways you can own a business
are

• Sole proprietorship
• Partnership
• Incorporation

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Sole Proprietorship
A sole proprietorship is a business owned by only
one person.
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Sole Proprietorship
The advantages to having your own business are

• Its easy to start
• You get to be your own boss
• You get to keep all the profits
• The taxes are usually low

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Sole Proprietorship
The disadvantages to having your own business
are

• You have to pay for everything yourself
• You might lack business skills

continued
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Sole Proprietorship-disadvantages

• You might have to use your personal savings or
  borrow money from the bank
• A serious disadvantage to owning a sole
  proprietorship is that you have unlimited
  liability, or full responsibility for your
  companys debts.

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

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

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Partnership
The disadvantages to partnership are

• You not only share the risks with your partners,
  you also share the profits.

continued
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Partnership

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

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Graphic Organizer
Similarities and Differences Between Partnerships
and Sole Proprietorships
Both
Partnerships
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
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Corporation
A corporation is a business owned by many people
but treated by law as one person.
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Corporation
To form a corporation, you need to get a
corporate charter from the state your
headquarters are located.
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Corporation
To raise money, you can sell stock, or shares of
ownership in your corporation.
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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.
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Corporation
A major advantage of a corporation is its limited
liability.
If your company loses money, the stockholders
lose only what they invested.
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Corporation
Another advantage is that the corporation doesnt
end if the owners sell their shares.
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Corporation
A disadvantage of a corporation is that you often
have to pay more taxes. The government closely
regulates corporations.
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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.
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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?
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Alternative Ways to Do Business
Franchises, cooperatives, and nonprofit
organizations offer you other ways to do
business.
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Franchise
A franchise is a contractual agreement to sell a
companys products or services in a designated
geographic area.
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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.
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Franchise
You can operate a franchise yourself, as a sole
proprietor, as a partnership with someone else,
or even as a corporation.
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Franchise
An advantage of opening a franchise is that its
easy to start.
The name of the parent company can be a big draw
for customers.
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Franchise
The disadvantage of running a franchise is that
the franchisor is often very strict about how the
business is run.
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Nonprofit Organization
A nonprofit organization is a type of business
that focuses on providing a service rather than
making a profit.
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Nonprofit Organization
Like a corporation, a nonprofit organization has
to register with the government and might be run
by a board of directors.
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Nonprofit Organization
Because it doesnt make a profit, a nonprofit
organization doesnt have to pay taxes.
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Nonprofit Organization
Donors dont receive dividends like investors,
but they can deduct their donations from their
taxes.
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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.
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Cooperative
A cooperative is like a corporation in that it
exists as a separate entity from the individual
businesses.
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Cooperative
A cooperative can sell stock and choose a board
of directors to run it.
Cooperatives pay less in taxes than regular
corporations do.
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Cooperative
Cooperatives can save money by buying insurance,
supplies, and advertising as a group.
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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
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Types of Businesses

• Manufacturing goods from raw or processed goods
• Distributing goods
• Providing services

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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.
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Processors
Processors change raw materials into more
finished products.
Processed goods are made from raw goods and may
require further processing.
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Manufacturers
Manufacturers are businesses that make finished
products out of processed goods.
The finished products need no further processing
and are ready for market.
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Intermediaries
An intermediary is a business that moves goods
from one business to another.
It buys goods, stores them, and then resells
them.
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Intermediaries
A wholesaler, also known as a distributor,
distributes goods.
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Intermediaries
Wholesalers buy goods from manufacturers in huge
quantities and resell them in smaller quantities
to their customers, usually other companies.
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Intermediaries
A retailer purchases goods from a wholesaler and
resells them to the consumer, or the final buyer
of the goods.
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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.
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Service Businesses
Some service businesses meet needs, such as
medical clinics and law firms.
Some provide conveniences, such as taxi companies
and copy shops.