Chapter 6 Business Ownership & Operations

Learning Objectives:  Name business ownerships.  Compare the ownerships.  Describe alternative ways to do business.  Identify types of businesses.

Organizing A Business  Suppose you’ve made the decision to start your own business. What do you do? What do you consider? 1. Your skills. 2. Your abilities. 3. The potential market for your product or service.

Three Types of Business Ownership 1. Sole Proprietorship 2. Partnership 3. Corporation

Sole Proprietorship A sole proprietorship is a business owned by only one person. ¾’s of all businesses in the US are sole proprietorships.

Advantages of A Sole Proprietorship 1. Easy to start. 2. You are your own boss. 3. Flexible hours. 4. You keep the profits. 5. Taxes are low.

Disadvantages of a Sole Proprietorship 1. You pay for everything. 2. You may lack the skills necessary for all aspect of company. For example, you may know everything about repairing a car but know nothing about bookkeeping. 3. You have unlimited liability. You are responsible for the financial well-being of your company. You could go bankrupt and lose your personal savings or property.

Partnerships A partnership is a business owned by two or more persons who share the risks and rewards. Requires an agreement.

Advantages of A Partnership 1. Easy to start. 2. Easier to gain capital. 3. Partners bring different skills to the business. 4. Flexible. 5. Limited Government Intervention.

Disadvantages of a Partnership 1. Unlimited personal liability of at least one partner. 2. Lack of continuity. 3. The actions of one partner can make the entire business liable. 4. Have to share profit.

Corporation A business owned by many people but treated by law as one person. It can own property, pay taxes, make contracts, and be sued just like a person.

Advantages of A Corporation 1. Limited personal liability. 2. Ownership can be transferred through stock sales. 3. Unlimited life. 4. Easier to obtain money. 5. Larger pool of talent and expertise. 6. Gives an impression of credibility to potential and current customers.

Disadvantages of A Corporation 1. Activity restrictions limited by the charter 2. Lack of representation of minority stockholders 3. Extensive record keeping 4. Organizing expenses are high 5. Double taxation

Alternative Ways to Do Business 1. Franchise 2. Nonprofit Organization 3. Cooperative

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.

Producers A producer is a business that gathers raw products in their natural state. Examples: A farmer who grows wheat in Kansas. A petroleum worker who drills for crude oil in Alaska.

Processors Processors change raw materials into more finished products. Example: Wheat turned into flour. Crude oil turned into gasoline.

Manufacturers Manufacturers are businesses that make finished products out of processed goods. Example: A bakery makes bread out of flour. A furniture factory makes tables out of lumber.

Intermediaries An intermediary is a business that moves goods from one business to another. It buys goods, stores them, and then resells them. Example: A wholesaler

Service Businesses Provide services rather than goods. Services are the products of a skill or an activity such as hairstyling and car repair. Service businesses employ about ¾’s of the workforce and are increasing.