Chapter 6

Business Structures

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 nameWrite two or three sentences describing your

businessWhere 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 groupsGroup 1 – Sole ProprietorshipGroup 2 – PartnershipGroup 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 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 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 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 LevelCareer SustainingSpecialistSupervisorManager/Entrepreneur

Entry Level

Standard or routine activities Limited or no need for decision-making skillsLittle - 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 dutiesRoutine decision-making skillsLimited 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 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 upFranchisor agrees to help franchisee get

startedNational 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

LLCProvides 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)