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Unit 4: Business Ownership
and OperationsMr. Elsesser
Introduction to Business
BRAINSTORM:Answer these questions…What are 3 different types of businesses?
Can you provide any examples?How are your examples similar ordifferent?
Organizing Types of Business Ownership
Sole ProprietorshipPartnershipCorporation
As your business expands, you can change the form of ownership.
Sole Proprietorship
• A sole proprietorship is a business owned by only one person.
• About three-quarters of all businesses in the United States are sole proprietorships.
• Ex: Florists, Auto Repair, farms, home-based businesses
Advantages of a Sole Proprietorship…
It’s Easy to Start:You may only need a license or permit
Proprietors are their own Boss:Come & Go as you please! Do it your way!
Proprietors keep all the profits:Everything is yours…spend it as you wish!
Low Taxes:Only pay taxes on your personal profits!
Disadvantages of a Sole Proprietorship
Unlimited Liability Owners are
responsible for the company’s debts.
Limited Access to Credit
Business owners might have to use their own capital and borrow against their own savings. USUALLY A REASON FOR
FAILURE
May Run Out of Money You have to buy your
own supplies, pay for advertising, rent office space and pay taxes
Business Ends when the owner dies.
May lack necessary skills
Might have to hire more people.
Partnerships…Is started by forming a partnership agreement:
Partnerships: A business owned by two or more
people who share its risks and rewards.
Ex: Law Firms, restaurants, construction
Key Questions of Starting a Partnership
You must decide: How much money will each of you invest? How will you share the profits? How will you share the work? How will you end the partnership?
If one partner decides to leave the business, the partnership legally ends
Advantages of Partnerships…Very Easy to Start
May only need a license to start.
Only Taxed OnceOnly pay taxes on all your personal profits.
Easier to Obtain CapitalAll partners contribute money to start business.
Advantages of Partnerships…Diversity in Skills
Each partner may bring different skills to the business.
Easier to Obtain CreditBanks more willing to lend money to partnerships.
Not Dependent on a Sole PersonBusiness can survive if owners leave.
Disadvantages of a Partnership
Business Risk is Shared
Owners are responsible for the company’s debts.
Unlimited Financial Liability
All business owners might have to use their own capital and borrow against their own savings.
Unlimited Legal Liability
All owners can be held personally responsible for contracts and accidents.
Partners may not get along
If a partner makes a mistake, all are responsible.
What would you do?Late one night you are working in your kitchen melting peanut butter and gummy bears together and you accidently come up with a new product you decide to call “Gummy Butter.” The next day at school you have samples of the butter for your friends to try. It is a HUGE HIT! Later, you hear your friend Sally Creamcheese talking to her boyfriend Moose about how she would like to be your partner in producing this new venture.
What should you do? Make “Gummy Butter” a sole proprietorship or go with Sally
and make it a partnership? Explain your answer.
A Quick Summary…Similarities and Differences Between
Partnerships and Sole Proprietorships
Increased diversity of experience
Shared losses
Combined
funds
Both
Pride in owning and
running businessEasy to set up
Low taxesUnlimited liability
for debtsHuge time demands
Quicker decision making
Owner keeps all profits
Owner is own boss
Relatively easy to get credit
Partnerships Sole Proprietorships
Shared decision making
Corporations…To form a corporation, owners must get a corporate charter from the state where their main office will be located:
Corporation: A company that is registered by a state
and operates apart from its owners. Ex: Dept. Stores, Banks, Technology
Companies
How To Start a Corporation
You must: File a corporate charter with the state your
headquarters is in. A Corporate Charter is a license to run a corporation.
Must file a Certificate of Incorporation through the Department of State’s Division of Corporations.
Corporation will need a federal
taxpayer ID #.
Advantages of Corporations…Easy to Raise Money and Collect Profits
Stock is sold to raise money. Do this as often as you need too.
Stockholders own the corporation Stockholder gets share of profits for every share owned
Also a “vote” per share for how company is run.
Board of Directors Control the Corporation You don’t run the overall direction of company.
Corporation does not end if owners sell shares
Corporation does not end if owners sell shares.
Disadvantages of Corporations…Double Taxation:
All income is taxed.Stockholders pay taxes on profits issued to them.
More Government RegulationMuch “Red Tape” to navigate—time consuming.
Difficult and Costly to StartStart-up process with the state is expensive.
Longfellow Deeds Explains Corporations…(start at 1:18)
Other Ways to Organize Business Ownership
CooperativeFranchiseNon-Profit Organization
Cooperative…The purpose of a cooperative is to save money on certain goods and services.
Cooperative: An organization that is owned and operated by
its members. Exists as a separate entity from individual
business. Pay lower taxes than corporations Run by Board of Directors. Members pool their resources to save money.
Franchise…To run a franchise you have to invest money or pay a franchise fees or share your profits with the franchisor.
Franchise: A contractual agreement to use the name and
sell the products or services of a company in a designated geographic area.
Franchisor offers well-known name and business plan
If you want to start a business but lack business expertise, a franchise would be a good choice.
Non-Profit Organization…A non-profit organization does not pay taxes because it does not make a profit.
Non-Profit Organization: A type of business that focuses on providing
a service and not making a profit Does not pay taxes. Relies on government grants and donations Donors deduct donations from their taxes.
Section Review1.What is the difference between a sole
proprietorship and a partnership?1.A sole-proprietorship is owned by one
person. A partnership is owned by two or more people.
2.If a partner makes a bad decision, what responsibility do the other partners have?1.All partners share responsibility for a
bad decision.
3.Why are cooperatives formed? 1.So that the members have advantages
in buying and selling products and services.
BRAINSTORM:Identify types of businesses.Identify some Different functions of businesses.
Examining How Business Works
There are many different types of businesses that require several different functions that enable each to operate on a daily basis.
Types of Businesses
Functions ofBusinesses
• Producers• Processors• Manufactures• Intermediaries and
Wholesalers• Retailers and Service
Businesses
• Production and Procurement
• Marketing• Management• Finance and
Accounting
Types of BusinessesThere are 5 types of Business:
1.Producer:A business that gathers raw goods from their natural state.Ex: Agriculture, Mining, Fishing or Forestry
Types of BusinessesThere are 5 types of Business:
2. Processor: A business that changes raw
materials into more finished products.Ex: Turning wheat into flour. Crude oil into gas.
Types of BusinessesThere are 5 types of Business:
3. Manufacturers: A business that makes finished
products out of processed goods and gets them ready for sale. Ex: A bakery makes bread out of flour
Types of BusinessesThere are 5 types of Business:
4. Intermediaries and Wholesalers:
Intermediary: A business that moves goods from one
business to another. Ex: They buy them, store them, & resell
them.
Types of BusinessesThere are 5 types of Business:
4. Intermediaries and Wholesalers:
Wholesalers: A wholesaler, also known as a
distributor, distributes goods—moves them from one business to another.
Intermediaries
Wholesalers buy goods from manufacturers in huge quantities and resell them in smaller quantities to their customers, usually other companies.
Types of BusinessesThere are 5 types of Business:
5. Retailers and Service Businesses:
Retailers: A business that purchases goods from
a wholesaler and sells them to consumers—the final buyers.
Types of BusinessesThere are 5 types of Business:
5. Retailers and Service Businesses:
Service Businesses: Businesses that perform tasks rather
than provide goods. Employ about ¾ of nation’s workforce.
Ex: Car Repair and Hairdressers.
Service Businesses Some service businesses meet needs, such as medical clinics and law firms.
Some provide conveniences, such as taxi companies and copy shops.
Functions of BusinessesThere are 5 Functions of Business:
1. Production and Procurement: Production:
The process of creating, expanding, manufacturing, or improving goods and services.
Procurement: The buying and reselling of goods and
services that have already been produced.
Functions of BusinessesThere are 5 Functions of Business:
2. Marketing: The process of planning, pricing,
promoting, selling, and distributing ideas, goods and services.
3. Management: The process of achieving company
goals by organizing, directing, controlling, and evaluating the effective use of resources.
Functions of BusinessesThere are 5 Functions of Business:
4. Finance: Requires analyzing financial statements to
make future decisions. The business or art of money management.
5. Accounting: Includes the maintaining and checking of
records, handling bills, preparing financial reporting for a business
Must have a high attention to detail and accuracy.
Functions of BusinessesHow are the Functions of Business are Interdependent… The functional areas of a
business depend on each other.
Sometimes the functional areas of a business conflict with each other.
Example of How Functional Areas Depend on Each
Other
Example of How Functional Areas Depend on Each Other
A furniture maker’s sales are decreasing.
The accounting and finance department notice decreasing sales.
If the furniture is too highly priced, more efficient procedures will have to be implemented.
A new marketing plan is created.
The accounting and finance department will monitor the effects of new marketing efforts.
Example of How Functional Areas Conflict with Each
Other
Example of How Functional Areas Conflict with Each Other
Management wants to increase sales by 20 percent within three years.
The production department suggests improving quality.
The marketing department requests more funds for projects.
Accounting says there is not enough money for either plan.
The final plan involves ideas from all the functions of business.
Section Review1. What is the different between a producer and a
processor?1. A producer gathers or creates raw products. A
processor changes raw products into more finished products.
2. Identify the five functions of business.1. Production and procurement, marketing,
management, finance, and accounting.
3. Give an example of how the accounting and finance functions can affect a business’s marketing/production processes. 1. If the financials show little profit, new marketing
plans may be developed and new production procedures may be implemented.