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Download  Different Types of Businesses  Forms of Business Ownership  Determining Type of Business Ownership  Other Considerations UNIT 1.03

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Principles of Business, Finance and Marketing

Different Types of Businesses

Forms of Business Ownership

Determining Type of Business Ownership

Other Considerations

Unit 1.03

Sole Proprietor


CorporationTypes of businessA business owned by one person

Most common legal form of ownership for new businesses

15-20 Million sole proprietors in United States

Accounts for 75% of businesses in US

Sole Proprietor

Pros:Control the entire businessKeep all of the profits Make decisions quicklyEasy to establishPay fewer taxes

ConsUnlimited liability

Sole proprietorA business owned by 2 or more persons who share responsibilities and profits/losses

Partnership Agreement (not filed with the government)Name of the new businessAmount each person is to invest in the businessAmount each partner is to draw in salary/profitHow profits/losses after salaries are paid will be shared in proportion to each partners investmentResponsibilities of the partners in the entityWhat will happen in the event of death of a partner(s)

3 Million business partnerships in United States

partnershipPros:Combine talents and financial resourcesShare in responsibility of running the business and making decisionsRelatively easy to establishPays less taxes than a corporation

Cons:Unlimited liabilityPotential for disagreementsLoss of partner could mean end of businesspartnershipA business organization that operates as a legal entity separate from its owners

Recognized as a person under the law

Articles of Incorporation

Sell Stock

Most revenue generated from this type of businesscorporationKey TermsStockholders/Shareholders: People who own stock in a corporation

Board of Directors: A group of people elected by shareholders to guide a corporation

Corporate Officers: are the directors and senior level management of a corporation

Charter: a license to operate from that state

Proxy: ability of a shareholder to vote on the affairs of a companycorporationPros:Limited liabilityShare of the profitsNo management responsibilityCan raise money by selling stockEasier to get credit

Cons:Legal red tapeIncreased tax burdenCorporationBusiness ownership distribution

the potential risks and liabilities of your business

the formalities and expenses involved in establishing and maintaining the various business structures

your income tax situation

your investment needs

Determining type of business ownershipFranchise






Service Firms

Other types of businessesfranchiseA contractual agreement to sell a companys products or services in a designated geographic area

Franchisee: the person or group of people who have received permission from a parent company to sell its products or services

Franchisor: the parent company that grants permission to a person or group to sell its products or services


Average McDonalds restaurant generates $2.5 million in sales annually75% of restaurants worldwide are owned by franchiseesTo become a franchiseePotential franchisees must have liquid assets of at least $750,000Expect to pay between $1M - $2M in start up costs based onGeography and size of the restaurantType of kitchen equipmentSignage and dcorLandscaping40% of start-up costs paid in cash up front, rest can be financed$45,000 franchise feeMonthly service fee of 4% of gross salesPay monthly rent to corporate (approx. 8.5%)McDonaldsPros:Name brand recognitionEstablished method of doing businessAccess to centralized advertising Professional help in startup/training

Cons:High startup costs in purchasing rights to use the business nameMust follow corporate standardsfranchiseExtractors: A business that grows products or takes raw materials from nature

Producers: A business that gathers raw products in their natural state

Processors: Businesses that change natural materials (raw goods) into a more finished form for manufacturers to process furtheri.e. paper mills, oil refineries, steel mills, etc.Other types of businessesManufacturers: A business that takes an extractors products or raw materials and changes them into a form that consumers can useIndustrial productioni.e. General Motors, GE, Dell, Intel

Service Firms: A business that does things for you instead of making productsIntangible goodsi.e. hospitality, banking, legal, logistics/deliveryOther types of businessesDistributor:WholesalerA middle firm that assists with distribution activities between businessesThe sale of goods to anyone other than a standard consumerOften sold in bulk/at a discount and not typically a name consumers would recognizeMcLane CompanyHQ in Temple, TX $47 Billion 2015 revenues 20,545 employees39 grocery and foodservice distribution centers across the countryProves grocery and foodservices to convenience stores, drug stores, restaurantsRetailerA business that sells directly to the consumerPurchases can be made in-store or on-line HEB, Gap, Macys, Best Buy, Barnes & Noble

Other types of businessesExample of Process flow