Business Ownership & Operations

Ch.6 – GlencoeCh. 19, 35 & 40 - NFTE

Sole Proprietorship – is a business owned by only one person

Partnership – is a business owned by two or more people

Corporation – is a business owned by many people but treated by law as one person

Franchise – is a contractual agreement to sell a company’s products or services in a designated geographic area

Types of Business Ownership

Relatively easy to start Owners pay Personal Income Tax on the business’s

earnings Fewer government regulations than for the other

forms of business Can make quick decisions and act without

interference from others Keeps all the profits from the business

Sole ProprietorshipAdvantages

Can be difficult to raise enough money by oneself to start or expand the business

Must often put in long hours There is unlimited personal legal liability from

lawsuits related to the business Unlimited Liability - full responsibility for your

company’s debts No one to offer encouragement or feedback The odds of failure are high

Sole ProprietorshipDisadvantages

Limited Partnership- have no say in the daily operations of the business and have, as a result, limited liability

Financing can be easier to secure Business risks, long hours, and legal liabilities are

shared Different skills and contacts are brought into the

business

PartnershipAdvantages

Profits must be shared Although shared, legal liability still includes personal

property Disagreements among the partners can destroy the

business Can be difficult and unpleasant to dissolve

PartnershipDisadvantages

Caution:Low-Flying FishNestled between the Waterfront on First and Pike find Seattle’s famous Pike Place Market. Merchants, travelers, and regulars have frequented this open-air market since 1907. In 1973, the Pike Place Merchants Association (PPMA) became officially incorporated as a nonprofit membership organization.

What’s the aim of joining forces and starting an

organization?

To raise money you can sell stock Stock – shares of ownership in your corporation

Limited liability (and legal liability) – the personal assets of the officers or stockholders cannot be used to pay corporate details

Ownership can be transferred easily

CorporationAdvantages

Are more heavily taxed than sole proprietorships or partnerships Taxed twice: first, as the income of the corporation; and

two, as dividends to the stockholders (must be declared as personal income on taxes)

Founder of a corporation (original entrepreneur) can lose control to the stock holders and board of directors, if they no longer own more than half the stock

Is more expensive Are subject to many government regulations

CorporationDisadvantages

Steve Jobs, Apple Computers Co-founder Board of Directors fired him Later, asked him to return to the company Most recently, stepped down to President,

and Tim Cook is now CEO

Entrepreneur Spotlight

Subchapter-5 Corporation – the company must have fewer than 75 stockholders, no corporate, partnerships or non-resident alien shareholders, and non shareholders who are not U.S. citizens Offers the legal protect of a C Corporation and without double taxation

Professional Corporation - Doctors, lawyers, architects, and other professionals can also incorporate themselves. The initials “P.C.” after a person’s name indicate this

Nonprofit Corporation – aim to contribute to the greater good of society and are not seeking to make a profit Also called 501(c )(3) corporations

C Corporation – sell ownership as shares of stock Most big companies, stockholder vote on important company

decisions, and to raise capital can sell more stock

Four Types of Corporations

1. What are some of the advantages of a sole proprietorship?

2. What is the difference between a sole proprietorship and a partnership?

3. If a partner makes a bad decision, what responsibility do the other partners have?

4. What are the disadvantages of a corporation?

Review

Franchisor - person who teaches the business, and provides support and supplies Growth with minimal capital investment Lower marketing and promotion costs Royalties – usually a percentage of the franchise’s sales is paid to

the franchisor Franchisee – the people who buy a franchise of a particular

business Ownership of a business with less risk than is involved in starting a

business alone Help with management and training Advertising – the franchise chain can afford multiple platforms that

the small-business owner could not finance alone

FranchiseAdvantages

Franchisor The franchisee may disregard the training and fail to operate

the business properly, tarnishing the reputation of the franchise and the brand

It can be difficult to find qualities or trustworthy franchisees Franchisees who do not experience success may try to sue the

franchisor Franchisee

Giving up control – much of the franchise’s operations are dictated by the franchisor

The franchisor may fail to deliver the promised training and support

The franchisor may engage in poor business practices that affect the earnings or image of the franchise

FranchiseDisadvantages

Ray Kroc, McDonald’s Opened in Des Plaines, Illinois, in 1955 First franchisor to provide in-depth training to

franchises Almost guaranteed all restaurants would taste the same

By 1983, was a $3 billion dollar company with 7,778 locates in 30 countries

Turned a simple idea in an internationallyrecognized symbol of American enterprise

Entrepreneur Spotlight

Caution:Low-Flying FIshAt 86 Pike Place, you’ll find the world-famous fish-flingers at Pike Place Fish. In 1965, John Yokoyama purchased it because he needed the money to make his car payments.

What’s the benefit of going into business for

youself?

Nonprofit Organization – is a type of business that focuses on providing a service, rather than making a profit Has to register with the government Doesn’t have to pay taxes Rely on government grants and donations from

individuals or businesses Donors do not get dividends like investors, but can

deduct donations from their taxes

Alternative Ways to Do Business

Cooperative – is an organization owned and operated by its members for the purpose of saving money on the purchase of certain goods and services Can sell stock and choose a board of directors Pool resources to save money on buying insurance,

supplies and advertising Share factory facilities and warehouse space Pay less in taxes

Alternative Ways to Do Business

Richard Hesse, E. Gunnard Lindquist, Frank Burke, & Oscar Fisher, Ace Hardware Co-foundered in 1924 Started as a cooperative Allowed smaller stores to buy in bulk to

compete with larger stores Currently has 4,400 stores that are

franchised and operated by a community member

Entrepreneur Spotlight

1. What are some examples of franchise businesses?

2. What types of assistance does the franchisor give a franchiser?

3. How is a nonprofit organization like and unlike a corporation?

4. What are some advantages of a cooperative?

Review

Caution:Low-Flying FishPike Place Fish didn’t become world famous by advertising. (Instead a Spike Lee Levi’s commercial, NBC’s Frasier, and MTV’s Real World helped expose the market.) Pike Place prides itself on interacting with the people. The staff wants to give each person a memorable experience.

Can a business have a contractual agreement

with its customers?

Producer – is a business that gathers raw products in their natural state.

Processor – change raw materials into more finished products

Manufactures - are businesses that make finished products our of processed goods

Intermediary – is a business that moves goods from one business to another Wholesale – distributes goods Retailer – purchases goods from a wholesaler and resells

them to the consumer, or final buyer Service – provide services rather than goods

Types of Businesses

Caution:Low-Flying FishYokoyama has such a strong desire to empower other business leaders that he’s formed a consulting team. His commitment to his people and his customers is one model other businesses are learning in corporate training videos.

What area does Pike Place Fish focus on other

than fish?

1. What is the difference between a producer and a processor?

2. What does an intermediary do?

3. Give examples of service business.

Review