Chapter
6
Business Ownership
and Operations
pp. 94-105
Learning Objectives
After completing this chapter, you’ll be
able to:
1. Describe the advantages and
disadvantages of the 3 main types of
business ownership.
2. Compare franchises, cooperatives,
and nonprofit organizations
Why It’s Important
You need to understand business
ownerships and operations before
starting a business.
Chapter 6 - Business Ownership and Operations
Slide 2
Types of Business
Ownership
•
•
•
SOLE PROPRIETORSHIP
Partnership
Incorporation
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SOLE PROPRIETORSHIP
• Business owned by only one person
ADVANTAGES
• Easy to start up
• Be your own boss
• Keep all the profits
• Taxes are usually low
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SOLE PROPRIETORSHIP
DISADVANTAGES
• Pay for everything yourself
• May have to use personal savings
or borrow money from the bank
• You might lack business skills
HUGE DISADVANTAGE
• unlimited liability =
or “full responsibility” for
your company’s debts
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Partnership
• Business owned by two or more
persons who share the risks and rewards
EQUALLY
To start up, need to create a partnership
agreement - a contract that outlines the
rights/responsibilities of each partner
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Partnership
ADVANTAGES
• “May” only need a license to start
• Pay taxes on your personal profits
• Each partner can add money to start up
• Banks are more willing to lend money
to partnerships than sole proprietorships
• Each partner brings different skills
Chapter 6 - Business Ownership and Operations
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Partnership
DISADVANTAGES
• You share not only the RISKS, but
PROFITS too
• Might not get along with your partners
• You share unlimited legal and financial
liability with your partners
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?????????????????????????
What is the number ONE disadvantage of a
sole-proprietorship?
UNLIMITED LIABILITY!
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Corporation
• Business owned by many people but
treated by the law as one person
• To form, need to get a corporate
charter from the state your
headquarters is located in
• To raise $$, you can sell stock - or
shares of ownership in your corp.
• For each share of common stock,
stockholder gets a share of the profits
and a vote on how the business is run
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Corporation
• Must have a Board of Directors who
control the corporation
ADVANTAGES
• limited liability for you!
• If company loses $$, stockholders lose
only what they put in (risk for them)
• The corporation doesn’t end if the
owners sell their shares
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Corporation
DISADVANTAGES
• Often have to pay more taxes
• Gov’t closely regulates corporations
• More difficult to start a corporation than
a sole proprietorship or a partnership
• Running a corporation can be much
more complicated
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??????????????????????????
Who is in control of making the decisions
for a corporation?
BOARD OF DIRECTORS
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HOMEWORK!!
Rd. Pages 99-103
Do questions 1-3 on Pg. 103
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Learning Objectives
After completing this chapter, you’ll be
able to:
1. Differentiate the 6 types of business.
2. Describe the 5 functions of business
Why It’s Important
You need to understand business
ownerships and operations before
starting a business.
Chapter 6 - Business Ownership and Operations
Slide 19
Other ways to do
Business
• Franchise
• Nonprofit Organization
• Cooperative
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Franchise
- Contractual agreement to sell a
company’s products or services in a
designated geographic area
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Franchise
• You invest money and pay the
franchisor an annual fee or a share of
the profits
• Franchisor offers a well-known name
and a business plan
• Can operate a franchise yourself, as a
sole proprietor, as a partnership with
someone else, or even as a corporation
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Nonprofit Organization
• Focuses on providing a service
rather than making a profit
• Has to register with the Gov’t and
might be run by a board of directors
• Doesn’t have to pay taxes
• Donors don’t receive dividends like
investors, but they can deduct their
donations from their taxes
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Cooperative
• organization owned and operated by its
members for the purpose of saving
money on the purchase of certain goods
and services
EXAMPLE: Ocean Spray Juice
Made up of a group of cranberry growers
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Types of Businesses
Group businesses by products they
provide:
• Producing raw goods
• Processing raw goods
• Manufacturing goods from
raw or processed goods
• Distributing goods
• Providing services
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Producers
- 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
STEEL
GLASS
PLASTIC
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.
WHOLESALER – stores and
distributes goods
Retailer – purchases from
wholesaler, resells to customer
customer
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INTERMEDIARIES
WHOLESALERS buy goods from
manufacturers in huge quantities and
resells them in smaller quantities to their
customers, usually other companies
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?????????????????????????????
Name the three types
of businesses raw
materials must go
through in order to
become a finished
product.
Tell me the two
different types of
intermediaries
Wholesalers
Retailers
Producer
Processor
Manufacturer
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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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5 Functions of Business
1. Production – creating/improving
goods/services
2. Procurement – buying/selling of produced
goods
3. Marketing – getting consumers to buy
product
4. Management – achieving company goals
through effective use of resources
5. Finance/Accounting – money management
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HOMEWORK!!
Chapter Review on Pgs. 104-105
Questions 2-6
Chapter 6 - Business Ownership and Operations
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