Business Ownership and Operations

Intro To BusinessChapter 6

Learning Targets

Section 6.1 – Types of Business Ownership› Describe the advantages and

disadvantages of the three major forms of business organizations

› Describe how cooperatives and nonprofits are like and unlike corporations and franchises

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Types of Business Ownership

Sole Proprietorship› A business owned by one person. Three-

quarters of all businesses in the U. S. take this form of organization

› Advantages: Easy to do (licenses/permits) In charge of their business Can make all of the decisions Can keep all of the profits Usually have lower taxes (taxed once)

Types of Business Ownership› Disadvantages:

Unlimited liability The owner is responsible for the company’s debt’s.

If the owner has more debt than they receive, the owner has to make up the difference.

Types of Business Ownership

Partnership› A business owned by two or more people

who share its risks and rewards.› Advantages:

Easy to start Easier to obtain capital Banks are often more willing to lend money Taxed only once Each partner brings specific skills and talents

Types of Business Ownership› Disadvantages

All of the partners share the risk Problems with partners getting along Unlimited Liability

Corporation› Company that is registered by a state and

operates apart from its owners› To raise money, the owners can sell stock

or shares of the company

Types of Business Ownership› Advantages

Limited Liability Holds a firms owners responsible for no more than

the capital that they have invested in it. Ability to raise money by selling stock Company does not end if an owner dies

› Disadvantages Double taxes Extra governmental restrictions More difficult and costly to start

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Types of Business Ownership

Other ways to Organize a Business› Cooperative

An organization that is owned and operated by its members When a group of businesses pool their resources Purpose – to save money on the purchase of certain goods and

services Ex. Ocean Spray› Nonprofit Organization

Type of organization that focuses on a providing a service, but not to make a profit.

Must register with the government. Because they do not make a profit they do not pay taxes. Ex. Churches

› Franchise A contractual agreement to use the name and sell the products or

services of a company in a designated area Ex. McDonalds, Tim Horton’s You have to invest money and pay franchise fees or share the

profits.

6-1

Questions/Reflection

1. What is the difference between a sole proprietorship and a partnership?

2. If a partner makes a bad decision, what responsibility do the other partners have?

3. Why are cooperatives formed?4. Compare limited liability and unlimited

liability.

Learning Targets

Section 6.2 – Types and Functions of Businesses› Differentiate the six types of businesses› Describe the five functions of business› Discuss how the five functions of business

relate to each other

6-2

Types and Functions of Businesses

Types of Business› Producers

Business that gathers raw goods Agriculture, mining, fishing, and forestry

› Processors Changes raw materials into more finished products Made from raw goods that require further

processing Crude oil to gasoline, iron ore into steel

› Manufacturers Makes finished products out of processed goods Cars, CD’s, Computers

Types and Functions of Businesses

Intermediaries and Wholesalers› Intermediary – A business that moves

goods from one business to another Buys goods, stores them and resells them

› Wholesaler – Distributes goods Retailers and Service Businesses

› Retailer – Purchases goods from wholesaler and sells them to consumer

› Record stores and auto dealers

Types and Functions of Businesses

Functions of Business› Production and Procurement

Production – Process of creating, expanding, manufacturing or improving goods and services

Procurement – The buying and reselling of goods that have already been produced.

› Marketing Process of planning, pricing, promoting, selling

and distributing ideas, goods, and services Getting consumers to buy the product

Types and Functions of Businesses› Management

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

› Finance and Accounting Finance – The business or art of money

management Requires analyzing financial statements to make

future decisions Accounting – Maintaining and checking

records, handling bills and preparing financial reports for a business.

Questions

What is the difference between a producer and a processor?

Identify the five functions of business. Give an example of how the accounting

and finance functions can affect a business’s marketing and production processes.