Understand the nature of business.

confidencetoughManagement

Nov 20, 2013 (3 years and 11 months ago)

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Understand the nature of
business.

2.01 Understand the types of business
ownership.


Business Ownership


Sole Proprietorship


Partnership


Corporation


Franchise

Sole proprietorship


A business owned and run by one person


The business is typically managed by the
owner.


Formation varies by state.

Advantages


Easy to start up


Complete control of the business


Owner receives all the profits


Limited taxes (one time taxation)

Disadvantages


Limited capital (money)


Unlimited liability (responsible for ALL debt)


The business is limited to the lifetime of the
owner

Partnership


A business owned and controlled by two or
more people who have entered a written
agreement


The management of the company depends on
the partnership agreement.

Advantages


More capital and credit available than a sole
proprietorship


Combined resources (money, expertise)


Shared management responsibilities


Shared risk


Work load easier to manage than a sole
proprietorship


Disadvantages


Profits are shared


Responsible for each others decisions


Potential for disagreement among partners


Unlimited liability (depending on type)

Limited Liability Partnership


Identifies some investors who cannot lose
more than the amount of their investment


Investors are not allowed to participate in the
day
-
to
-
day business management

Types of Partnerships


Dormant partner

plays no role and is not known to the
public.


General partner

plays an active role and has unlimited
liability (every partnership must have at least one general
partner).


Limited

participate as investors and have limited liability.


Secret partner

plays an active role but is secret from
society.


Silent partner

does not have an active role but is known to
the public.


Types of Partnerships

Type of
Partner

Participation

in the
Business

Relationship

to the
Public

Degree of
Liability

Dormant

Not active

Unknown

Unlimited

General

Active

Known

Unlimited

Limited

Not active

Known

Limited

Secret

Active

Unknown

Unlimited

Silent

Not active

Known

Unlimited

11

Corporations


An organization
owned

by one or more
shareholders and
managed

by a board of
directors.


Ownership


Determined by purchase of stock


A stockholder, or shareholder, owns a ‘piece’ of the
company


One share of common stock equals one vote

Advantages


Easier to obtain capital


Limited liability for shareholders


Life of the corporation is unlimited

Disadvantages


Double taxation (profits and earnings)


Government regulations and legal restrictions


Decision
-
making shared among managers,
board of directors, and shareholders

Specialized Corporations


Subchapter S (S
-
corporation)


treats partners as individuals by taxing them once


Limited Liability Company


Provides limited liability protection for owners


Nonprofit corporation


A group of people who join to do some activity
that benefits the public


Types of Corporations


Domestic
-

chartered in a specific state

Examples located in North Carolina:


Bank of America Corporation


Lowe’s Home Improvement Store


Foreign
-

chartered in one state, but doing
business in another state


Alien
-

chartered in another nation, but doing
business in a state

Types of Corporations continued


Public
-
established for a governmental purposes

Examples


National Science Foundation


Export
-
Import Bank of the United States


Private
-
established by individuals for business
or charitable purposes.

Examples


Enterprise Rent
-
A
-
Car


American Cancer Society



17

Cooperatives


Owned by members, serves their needs, and
is managed in their interest


Purchase goods and services cheaper as a
group than as individuals


Greater bargaining power than as individuals


Franchise


Permission to operate a business to sell
products and services in a set way


Begins with a parent company who owns the
product or service and grants the right to
another business


Franchiser
: the company that owns the
product


Franchisee
: the company purchasing the right
to run the business

Types of Franchises


Business
-
format


Requires franchisee to sell products or service in a
specific format



Product
trade
-
name


Allows franchisee to sell specific products. This
format is usually formed by automobile, appliance,
and petroleum product