Business Ownership & Operations

Section 6

soleproprietorship

a business owned by one person

partnershipa business owned by two or more people who share its risks and rewards

corporationa company that is registered by a state and operates apart from its owners

cooperativean organization that is owned and operated by its members

nonprofitorganization

a type of business that focuses on providing service, not on making a profit

franchise

a contractual agreement to use the name and sell the products or services of a company in a designated geographic area

Sole Proprietorship, Corporation, and Partnership

Advantages of Sole Proprietorships

Easy to start Proprietors are in charge

Proprietors keepall the profits

Taxes are lowerthan a corporation’s

A major disadvantage of owning a sole proprietorship is that the owner has unlimited liability.

unlimited liabilitywhen the owner is responsible for the company’s debts

Other Disadvantages of Sole Proprietorships

Limited accessto credit

Many run outof money

The owner may not have the necessary

skills

The business endswhen the owner dies

To start a partnership, you need a partnership agreement.

Advantages of Partnerships

Easy to start

Easier toobtain capital

Easier toobtain credit

Not dependent on a sole person

Only taxed once

Diversity in skills

Disadvantages of Partnerships

Business risk is shared

Unlimited legal and financial

liability is shared

If one partner makes a

mistake, all partners are responsible

To form a corporation, the owners must get a corporate charter from the state where their main

office will be located.

Advantages of Corporations

Limited liabilityAbility to raise

money byselling stock

Business doesnot end when

anowner dies

Disadvantages of Corporations

Double taxationMore

governmentregulation

Difficult andcostly to start

1. Income is taxed.2. Stockholders pay taxes

on profits issued to them

Functions of Businessproducer a business that gathers raw goods

(timber, dairy, crops)

processora business that changes raw materials into more finished products (oil into gasoline, canned food)

manufacturer a business that makes finished products out of processed goods (cars, computers)

Functions of Business

intermediarya business that moves goods from one business to another (distributor of paper products)

wholesaler a business that distributes goods in bulk quantities to other businesses (clothing manufacturer)

retailer

a business that purchases goods from a wholesaler and sells them to consumers, the final buyer of the goods (Wal-Mart)

productionthe process of creating, expanding, manufacturing, or improving goods and services

procurementthe buying and reselling of goods that have already been produced

marketingthe process of planning, pricing, promoting, selling, and distributing ideas, goods, and services

management

the process of achieving company goals by planning, organizing, directing, controlling, and evaluating the effective use of resources

finance the business or art of money management

accounting

maintaining and checking records, handling bills, and preparing financial reports for a business

Types of Businesses

Functions ofBusinesses

• Producers• Processors• Manufactures• Intermediaries and

Wholesalers• Retailers and Service

Businesses

• Production and Procurement

• Marketing• Management• Finance and

Accounting

In the U.S.A., service businesses employ about three-quarters of the workforce and are rapidly increasing in numbers.