Chapter 6

Business Ownership and Operations
6.1 Objectives
 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.
Types of Ownership
Three different types of ownership:
 Sole Proprietorship
 Partnership
 Corporation
 As your business expands and changes, can your type
of ownership?
Sole Proprietorship
 A business owned by only one person.
 About ¾ of all businesses in the United States.
 Textbook page 95
 Figure 6.1
 Why do some people want to own their own business?
Respond in your notes.
 Easy to create
 Free to run the business as you see fit
 You retain the majority of the profits
 You must pay for everything yourself
 Lack of business skills
 Unlimited liability
 Full responsibility for the businesses debts.
 If you lose more money than you make, you have
to make up the difference.
 A business owned by two or more persons.
 Each owner shares the risk and reward.
 Partnership agreement needed
 Contract outlining the rights and responsibilities of each
 Easy to create
 Easier to obtain start-up money
 Skill diversity
 Share profits
 Unlimited legal and financial liability with your
 The actions of your partner(s) directly affects you
 A business (company) registered by a state and
operates separately from its owners
 Corporate Charter
 A license to run a corporation
 Needed to form a corporation
 Obtained from the state your headquarters is in
Corporations (continued)
 To raise money you can sell stock.
 Shares of ownership in your corporation
 Board of Directors
 Controls the corporation and makes major decisions
 Hires officers to control the day-to-day operations
 Limited liability
 If your company loses money, the stockholders
lose only what they invested.
 Doesn’t end if the owner(s) die
 Raise money rapidly by selling shares.
 Pay more taxes
 Owners are taxed on their income from the
 Closely regulated by the government
 Difficult to start
 Complicated operations and management
What would you do?
 Imagine
you and a friend invented a
coffee mug that keeps the coffee at a
constant temperature (so it never gets
cold). You would like to sell this
product and your friend wants to be
your partner. Since he worked with you
on the new invention, should you form
a partnership with him? Why or why
not? Identify and describe several
advantages and disadvantages.
Alternate Ways to Do Business
There are three other ways to do business:
 Franchise
 Nonprofit Organization
 Cooperative
 Contractual agreement to sell a company’s products or
services in a designated geographic area.
 Brainstorm! List all of the franchises you can think of that are
in your neighborhood/area.
 Running a franchise:
 Invest money
 Pay the franchisor an annual fee or share the profits
 You receive a well-known name and business plan
 Can operate as a sole proprietorship, partnership, or even a
 Easy to start
 Name of the parent company draws business
 Franchisor is often very strict on business operations
 Limited in what products or services you can offer
Nonprofit Organization
 A type of business that focuses on providing a
service rather than making a profit.
 Examples: American Red Cross, Meals on Wheels. Also,
private hospitals, schools, and museums can be set up
this way.
 No profit = no taxes
 Rely heavily on government grants and donations
 An organization owned and operated by its members
for the purpose of saving money on the purchase of
certain goods and services.
 Example: Ocean Spray – a cooperative of cranberry growers.
 Exists as a separate entity from the individual
 Government Charter is needed to start one
 Can sell stock and choose a board of directors
Cooperative (continued)
 Used by small farmers, book dealers, or antique
 Can pool their resources together
 Save money by buying insurance, supplies, and
advertising as a group.
 Pay less taxes
 Other examples: Ace Hardware and Welch’s
Worksheet Pages 37 & 39
 Complete the worksheets independently
 Compare your answers with a friend
 Be prepared to discuss
Types of Businesses
There are many different types of businesses and different ways to
classify them. One way is to group them by the kind of products
they provide:
 Producing raw goods
 Processing raw goods
 Manufacturing goods from raw or processed goods
 Distributing goods
 Providing services
 A business that gathers raw products in their
natural state.
 Raw goods – materials gathered in their original
state from natural resources such as land or water.
 Industries include:
 Agriculture, mining, fishing, and forestry
 Change the raw materials into more finished products.
 Example: Wheat is turned into flour, crude oil into
gasoline, and iron ore into steel.
 May require further processing
 Businesses that make finished products out of
processed goods.
 Turn raw or processed goods into finished goods that
require no further processing and that are ready for the
 Example: Automotive plant makes cars out of steel,
glass, and plastic.
 A business that moves goods from one business to
 It buys goods, stores them, and then resells them.
 A wholesaler (distributor) is an intermediary.
 Buys goods from a manufacturer in huge quantities and
resells them in smaller quantities to their customers (usually
other companies).
 A retailer purchases goods from a wholesaler and
resells them to the consumer, or the final buyer of the
Service Business
 Provide services rather than goods
 Products of skill or an activity
 Examples: Hairstyling, car repair
 Employs about three-quarters of the workforce
and is rapidly increasing.
Worksheet Pages 36 & 40
 Complete the worksheets independently
 Compare your answers with a friend
 Be prepared to discuss