Business Structures Chapter 6

Warm-UP Think about the four types of businesses Extractors, Manufacturers, Marketers, Service Businesses If you were to start your own business, which type of business would it be? Come up with a name Write two or three sentences describing your business Where would you put this business? What other information do you need or concerns do you have about running this business?

Types of Business Ownership There are 3 major types of business ownership. Sole Proprietorship Partnership Corporation

Sole Proprietorship A business owned by one person Small stores – jewelry, restaurants, gas stations, hair salons 2/3rds of U.S. businesses are sole proprietorships Sole proprietor has complete control of all business decision But assumes ALL risk as well (unlimited liability)

Partnership A business owned and managed by a small group (usually two or three people) by written agreement Owners share in profits AND share in all debts (unlimited liability)

Corporation A business operated by multiple people, and with written permission (after filing for certificate of incorporation) from the state. The corporation becomes its “own person” which “acts on behalf of the owners” It is a legal entity existing separately from its owners

Read the story of creating a business

Get into three groups Group 1 – Sole Proprietorship Group 2 – Partnership Group 3 – Corporation Your group will come up with at least three advantages and three disadvantages for your type of ownership Share with class

Sole Proprietorship Advantages Disadvantages Easy to start business Owner makes all the decisions and is own boss Owner receives all of the profits Disadvantages Capital is limited to what the owner can supply or borrow Owner is liable for all debts, even losing personal property if business fails (unlimited liability) Long hours and hard work often necessary Life of the business depends upon owner; it ends of owner quits or dies

Partnership Advantages Disadvantages Fairly easy to start the business More sources of capital available More business skills available Disadvantages Each partner is liable for business debts made by ALL partners, even to losing personal property if business fails Each partner can make decisions; more than one boss Partnership ends of partner quits or dies Each partner shares the profit

Corporation Advantages Disadvantages More sources of capital available (stock) Specialized managerial skills available Owners liable only up to the amount of their investment Ownership can be easily transferred through sale of stock; business is not affected by change of ownership Disadvantages Difficult to start (Certificate of Incorporation) Owners do not have control of day to day decisisons (unless they are officers of company – CEO, president etc.) Double Taxation

Within the hierarchy of a business, there are different levels of careers Entry Level Career Sustaining Specialist Supervisor Manager/Entrepreneur

Entry Level Standard or routine activities Limited or no need for decision-making skills Little - No previous education or experience necessary Requirements: Good personal appearance Appropriate business behavior Basic math and communication skills DANCE MOVES? Examples: Cashier Bagger Counterperson Clerk Driver Attendant

Career Sustaining Level More complex duties Routine decision-making skills Limited control of one’s own working environment Empowerment Examples: Sales person Reservationist waiter/waitress Stockperson

Specialist Frequent use of decision-making and leadership skills Requirements: Mastery of skills across functions or extensive knowledge of ones functions Thorough understanding of the concepts and functions related to ones position Examples: Professional salesperson, copywriter, buyer, mfg. rep.

Supervisor High level of competence in decision-making and leadership skills Responsible for planning, coordinating, and supervising people activities Examples: Department manager Supervisor Shift manager Sales manager

Manager/Entrepreneur Competence in a variety of tasks related to owning one’s own business or managing a department within an organization Responsible for success or failure of a unit within an organization or of entire business Examples: Merchandise manager Marketing manager Store manager Owner

Organizational Chart

Board of Ed

Franchising A continuing relationship in which a franchisor provides the rights to the franchisee to operate or sell a product (to run a franchise).

Franchise A franchise is a written contract granting permission to sell someone else’s product or service in a prescribed manner, over a certain amount of time, and in a specified territory. Can be operated as a proprietorship, partnership, or corporation

Franchise Franchisee Franchisor Franchise agreement states the Individual or business granted rights to operate the business Franchisor Parent company granting the rights to franchisee Franchise agreement states the Duties and rights of both parties Name and products/services offered Design and color of the building Price of products/services uniforms

Franchise Relatively easy to start up Franchisor agrees to help franchisee get started National advertising by franchisor Franchisor collects percentage of sales or agreed upon fee each year Usually require large start up capital $250,000 $500,000 $750,000

Cooperatives Cooperatives are owned by the members it serves and is managed in their interests Similar to corporations Formation approved by state Owners may own share of stock Board of directors US co-ops

Cooperatives Difference between co-op and corporation is in how it is controlled Each member gets one vote (no matter how many “shares” each member owns) or Profits are refunded to owners or put back into business for expansion

Non-Profit Corporations Any corporation that provides a service but not for profit Owners do not collect payment from “profits” Profits are put back into the corporation Ex. Some colleges, American Red Cross, Boy Scouts of America, Future Business Leaders of America, DECA

Limited Liability Corporation LLC Provides the limited liability features of a corporation and the tax benefits and flexibility of a proprietorship or partnership Members are protected from personal liability for business decisions  not taxed as a separate business entity  Profits and losses are shared by each member of LLC Members report profits and losses on their personal federal tax returns, (just like the owners of a proprietorship or partnership would)