Principles of Business & Marketing Chapter 5 Notes
Chapter Overview: To examine the forms of business ownership
5.1 Business in the US economy
5.2 Forms of Business ownership
5.3 Organizational Structure for Businesses
5.1
3 Goals: Describe the changing status of US Employment; discuss the role of business in the
US economy, and Describe 3 major types of businesses.
Key Terms: Contingent worker, intermediaries and service business.
Notes:
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Jobs are shifting from manufacturing and agriculture to service jobs
Employment data: Timeline- 9/11/2001 to 2003 recession- 2003 to 2008 6% economic
growth- 2009 to present recession.
Baby boomers: born 1946-1964. Largest age group ever
2020 average age of US worker will be 50
Growth segments of jobs are 20-30 year olds, Asian, Hispanic, and African-American
workers.
Caucasian is dropping from 68% in 2009 to 64% by 2018
Women fast growing also: 1960’s was 35%. By 2018 will be almost 50%
Pressures on employees
Economic downturn and downsizing, full time to part time, working long hours to keep
job, wage cuts, benefits losses, 7-10 feel they do not spend enough time with their kids
Contingent worker: one who has no explicit or implicit contract for long term
employment. Temporary or on call workers. 5% of labor force expected to double in 10
years. Some like for flexibility of schedule.
Sizes of US Businesses:
2009 all businesses worldwide produced more than 70 trillion dollars. US were
responsible for almost 20 percent of this. 25 million full and part time businesses
making these goods
In US 19.5 million businesses have no employees other than the owner.
6.5 million employ fewer than 20 people
886,000 employ 20-100 people
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182,000 employ 100 or more
890 employ more than 10000
Our economy has small business as the foundation for success.
Roles of business:
Most important to make and distribute products and services needed by consumers,
government and other businesses.
Provides employment. Wages paid purchase goods and services.
Businesses pay taxes so governments can spend and provide services
Impact on Community:
Wages used to buy goods and services.
Creates more jobs, housing needs, taxes to community. Small businesses locate near large
ones.
6 activities performed by all businesses:
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Generating ideas for new business. Make sure competitive
Raising capital. Needed to start or grow business. Loans. Investors
Employing and training personnel: recruiting, hiring and training
Buying goods and services: all businesses buy goods and services.
Marketing Goods and Services: bring awareness to users
Maintain business records: needed to run business. Verification and tax reporting.
3 types of businesses:
1. Producers: create products and services used by individuals and businesses. Producers
include:
Extractors: take resources from nature. Oil, coal…
Farmers: cultivate land and other resources to grow crops and raise livestock for consumption
Manufacturers: get supplies from other producers and convert into products.
2. Intermediaries: businesses that sell goods and services. They are retailers and
wholesalers.
3. Service Businesses: offer something that is intangible. No products. Dentists, Dr.,
painters, massage. Service fastest growing. 60% of US employment.
5.2 Forms of Business Ownership
3 Goals: Understand the 3 major forms of business ownership, Determine when each form of
business ownership is appropriate, Recognize other specialized business ownership forms.
Key terms: proprietorship, partnership, corporation, partnership agreement, articles of
incorporation, franchise
3 major forms of ownership:
1. Proprietorship: a business owned and run by 1 person. Easiest form to start and end.
Sole control. All profits. All liabilities. Must common.
2. Partnership: a business owned and controlled by 2 or more people. Similar to
proprietorship. Partnership agreement needed. Each partner liable for all debts if fail.
3. Corporation: separate legal entity formed by documents filed with a state. Owned by
one or more shareholders and managed by board of directors. More difficult to form
and legal requirements. Protected from liability to only amount invested.
Choosing a proprietorship: want total control. Easy to start. Tax advantage as take rate is your
tax rate versus high corporation tax rates. Can take personal assets if fail.
Choosing a partnership: can be a verbal agreement but better to be a written partnership
agreement. Describes business, partner roles, investments, profit distribution, responsibilities.
Advantage is extra expertise and funding with partners. Must work well together.
Choosing a corporation: most popular for large businesses. Also can be for very small.
Articles of incorporation: a written document that defines ownership and operations
Corporate by-laws: operating procedures of corporation
Board of Directors: people who make major policy decisions and financial decisions
Advantage is liability is limited to your investment.
Disadvantages: lots of record keeping, more laws, tax rate high
Specialized Partnerships:
Limited liability partnership: limits your liability to investment but cannot participate in day to
day operations
Joint Venture: 2 businesses operate for a limited time for a specific project
Specialized Corporations:
S Corporation: limited liability but all income passes through to owners and is taxed at lower
personal tax rate
LLC (Limited Liability Company) best features of partnership and corporation. No articles of
incorporation needed.
Non-profit: company that benefits the public and are free from taxes. Must be government
approved.
Cooperative: owned by a group that serves their needs. Purchase goods and services cheaper
as a group. Large number of small businesses working together.
Franchise: written contract granting permission to operate a business to sell products and
services in a set way.
Franchiser: company that owns and grants the rights (McDonalds, Subway,)
Franchisee: the company purchasing the rights.
5.3 Organizational Structure for Businesses
2 Goals: Understand important principles in designing effective organization, Compare
alternative organizational structures for businesses.
Key terms: mission statement, goal, policies, procedures, organization chart
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An effective business has a clear purpose
1. Mission statement: a specific written statement of the reason a business exists and
what it wants to achieve. Usually 2-3 sentences.
2. Goal: statement of expected or desired results. What needs to be achieved?
3. Policies: guideline used in making consistent decisions and actions
4. Procedures: descriptions of the way work is to be done. Guidance and direction for
people in organization.
Principles that guide effective organizations:
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Responsibility: obligation to complete specific work
Authority: right to make decisions about how things should be accomplished
Accountability: taking responsibility for the results achieved
Unity of Command: a clear reporting relationship for all the staff. Who is the leader
and how decisions will be made
5. Span of Control: number of employees assigned to a particular task and manager
Organization Chart shows structure of an organization, classifications of work, and the
relationships. Who reports to whom?
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Functional Organization Structure: work arranged by functions: production, operations,
marketing and human resources. Report to managers who are responsible for that
function. Same skills.
Matrix Organizational Structure: work structured by specific projects, products or
customer groups. Varied backgrounds are assigned together. Interesting and
motivating. Work with many different people.