Unit 1
Introduction to Business & Forms of Business Ownership
Chapter 2
TYPES OF BUSINESSES
Essential Questions
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How are businesses classified?
What is the difference between a need and a want?
How do needs and wants relate to business opportunities?
What is consumer purchasing power?
What are the characteristics of an entrepreneur?
What is the Law of Demand, and how does it relate to price
and consumer purchasing habits?
• What is the Law of Supply, and how does it relate to price and
production?
• What are the different forms of business ownership?
• How are international businesses structured?
Forms of Business Ownership
• Forms of business ownership and types of businesses describe
how they are organized and run.
• The four main forms of business ownership are listed below:
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Sole proprietorship
Corporation
Partnership
Co-operatives
• A franchise is a combination, or hybrid, of the four forms of
ownership.
Forms of Business Ownership
• Sole Proprietorship
• A sole proprietorship is a business owned by one person who is
known as the proprietor.
• The proprietor has a wide range of responsibilities including
arranging displays and selling to consumers to name a few.
• Fund to run the business usually come from the owner’s savings,
friends, family, and from a bank loan.
• If the business prospers, the owner receives all the profits.
• If the business does poorly, the owner is responsible for its losses.
• This is called unlimited liability
Forms of Business Ownership
• Partnership
• A partnership refers to a type of business in which two or more
individuals share the costs and responsibilities of owning and
operating it.
• The terms of the partnership are recorded in the partnership
agreement.
• The most common form of partnership is a general partnership,
• When two individuals form a limited partnership, the partners
are only responsible for the funds they both invested in the intial
business.
• This is called limited liability.
Forms of Business Ownership
• Corporations
• A corporation is a business granted legal status with rights,
privileges, and liabilities that are distinct from those of the people
who work for the business.
• Corporations can be small such as one-person business or large such
as a multinational that conducts business in several different
countries.
• Small portions of corporate ownership that are owned publically are
called stocks or shares.
• Individuals who own shares of a corporation are called shareholders
and become owners of the business.
• Shareholders have limited liability.
• A board of directors runs a corporation that is owned by
shareholders.
• A publicly traded corporation that makes a profit may pay out
dividends to shareholders.
Forms of Business Ownership
• Types of Corporations
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Private corporations
Crown corporations
Public corporations
Municipal corporations
• Co-operatives
• A co-operative is owned by the workers or members who buy the
products or use the services that the business offers.
• This type of business is motivated by service and not profit.
• Adaptations of this business model include consumer, retail, and
worker co-operatives.
Forms of Business Ownership
• Franchise
• The franchiser licenses the rights to its names, operating
procedure, designs, and business expertise to another business
called the franchisee.
• A franchise agreement can provide the franchisee with:
• A ready made, fully operational business
• Brand recognition that is appealing to consumers
• Requirements before a franchise is awarded may include:
• Paying the franchise fee
• Agreeing to pay a monthly percentage fee as well as any national or
local advertising costs
• Purchasing all supplies centrally from the franchiser
• Participating in franchiser standards training
Going into Business
• Eight (8) questions to Ask Yourself before going into Business
1.
Why start your own business?
• People who desire to be the boss and take responsibility for making
decisions often decide to run their own businesses.
• They believe it is the best way for them to achieve financial
independence, to allow them to use their skills and knowledge, and
to be creative.
2.
What different types of Businesses are there?
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Service business
Retail business
Not-for-profit
Manufacturing
What are your skills and interests?
• Different ideas, skills, and knowledge can be used to start new
business.
• Two popular ones are home-based or Web-based businesses.
Going into Business
i.
Should your business be home-based?
• Technology has changed how SOHO (“Small office, home-based”)
business operate.
• Computers, scanners, and internet access are a few of the tools that
home office business use today to be successful.
ii.
Should your business be web-based?
• E-commerce (“electronic commerce”) is a marketplace where
consumers and sellers meet without face-to-face contact.
• In the “real world,” products are tangible.
• Products and services are sold to us by personal contact with the
sellers.
• Online we do not interact with products or come face-to-face with
the sellers.
• Our experience with services is limited or non-existent.
• Consumers are often reluctant to purchase online due to unreliable
or dishonest businesses and privacy issues.
Going into Business
4.
Where can you find information about a business?
• Business require accurate and current information to make good
decisions.
• Important resources to find information include:
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Libraries
Trade associations
The Internet
Existing businesses
Federal and provincial governments (i,.e. Strategies and Statistics Canada
are two helpful government sites or agencies.)
What are the Start-up Costs?
• Capital resources to run a business are available through debt
financing referred to as borrowing money to run the business.
• Using your savings or investor savings called equity financing is an
alternative way to fund a business.
Going into Business
6.
What level of risk can you expect?
• Even with research and planning, business can be risky.
• Risks or threats beyond and within the owner's control can put the
business in financial difficulty.
7.
What steps are involved in running this business?
• Some types of businesses, such as manufacturing, are complex.
• A complex business requires many people with different skills
successfully start and operate
Going into Business
8.
What resources will you need?
• Forecasting is determining the resources the business requires and
how much financing it needs to obtain them.
• Revenue is amount of money gained from the sale of products or
services.
International Business Structures
• Number of different business structures allow businesses to
expand into international markets.
• Joint Ventures
• A joint venture can match the skills and expertise of two different
individuals or businesses to generate more benefits for both
parties.
• International Franchises
• An international franchise is a way to achieve an international
presence by buying the rights to a chain operation from the
franchiser.
International Business Structures
• Strategic Alliances
• Strategic Alliances occur when two or more businesses agree to
commit particular resources to achieve a common set objectives.
• Alliance partners remain separate and entirely independent of
each other.
• Mergers
• Mergers happen when two or more companies join:
• One of the businesses usually wants to purchase a controlling
interest in the other company, or both business have combined
interests..
International Business Structures
• Offshoring
• Offshoring relocates some of the company’s operations to
another country.
• Usually this happens to take advantage of lower labor costs, to be
closer to large and emerging buyer markets, and to have access
to skilled work forces.
• Multinational Corporations
• A business enterprise that conducts business in another country
or several different countries is a multinational corporation.
• A multinational corporation offers different benefits to the
country it invests in.
• Some positive benefits include new jobs and training for people.
• Negative consequences could be less pay and more financial
instability for citizens of that country.