Transcript Chapter 6
Business Ownership and Operations
6.1 Objectives
Describe the advantages and disadvantages of the three
major forms of business organizations.
Describe how cooperatives and nonprofits are like and
unlike corporations and franchises.
Types of Ownership
Three different types of ownership:
Sole Proprietorship
Partnership
Corporation
As your business expands and changes, can your type
of ownership?
Sole Proprietorship
A business owned by only one person.
About ¾ of all businesses in the United States.
Textbook page 95
Figure 6.1
Why do some people want to own their own business?
Respond in your notes.
Advantages
Easy to create
Free to run the business as you see fit
You retain the majority of the profits
Disadvantages
You must pay for everything yourself
Lack of business skills
Unlimited liability
Full responsibility for the businesses debts.
If you lose more money than you make, you have
to make up the difference.
Partnership
A business owned by two or more persons.
Each owner shares the risk and reward.
Partnership agreement needed
Contract outlining the rights and responsibilities of each
partner.
Advantages
Easy to create
Easier to obtain start-up money
Skill diversity
Disadvantages
Share profits
Unlimited legal and financial liability with your
partners
The actions of your partner(s) directly affects you
Corporations
A business (company) registered by a state and
operates separately from its owners
Corporate Charter
A license to run a corporation
Needed to form a corporation
Obtained from the state your headquarters is in
Corporations (continued)
To raise money you can sell stock.
Shares of ownership in your corporation
Board of Directors
Controls the corporation and makes major decisions
Hires officers to control the day-to-day operations
Advantages
Limited liability
If your company loses money, the stockholders
lose only what they invested.
Doesn’t end if the owner(s) die
Raise money rapidly by selling shares.
Disadvantages
Pay more taxes
Owners are taxed on their income from the
corporation
Closely regulated by the government
Difficult to start
Complicated operations and management
What would you do?
Imagine
you and a friend invented a
coffee mug that keeps the coffee at a
constant temperature (so it never gets
cold). You would like to sell this
product and your friend wants to be
your partner. Since he worked with you
on the new invention, should you form
a partnership with him? Why or why
not? Identify and describe several
advantages and disadvantages.
Alternate Ways to Do Business
There are three other ways to do business:
Franchise
Nonprofit Organization
Cooperative
Franchise
Contractual agreement to sell a company’s products or
services in a designated geographic area.
Brainstorm! List all of the franchises you can think of that are
in your neighborhood/area.
Running a franchise:
Invest money
Pay the franchisor an annual fee or share the profits
You receive a well-known name and business plan
Can operate as a sole proprietorship, partnership, or even a
corporation
Advantages
Easy to start
Name of the parent company draws business
Disadvantages
Franchisor is often very strict on business operations
Limited in what products or services you can offer
Nonprofit Organization
A type of business that focuses on providing a
service rather than making a profit.
Examples: American Red Cross, Meals on Wheels. Also,
private hospitals, schools, and museums can be set up
this way.
No profit = no taxes
Rely heavily on government grants and donations
Cooperative
An organization owned and operated by its members
for the purpose of saving money on the purchase of
certain goods and services.
Example: Ocean Spray – a cooperative of cranberry growers.
Exists as a separate entity from the individual
businesses.
Government Charter is needed to start one
Can sell stock and choose a board of directors
Cooperative (continued)
Used by small farmers, book dealers, or antique
merchants
Can pool their resources together
Save money by buying insurance, supplies, and
advertising as a group.
Pay less taxes
Other examples: Ace Hardware and Welch’s
Worksheet Pages 37 & 39
Complete the worksheets independently
Compare your answers with a friend
Be prepared to discuss
Types of Businesses
There are many different types of businesses and different ways to
classify them. One way is to group them by the kind of products
they provide:
Producing raw goods
Processing raw goods
Manufacturing goods from raw or processed goods
Distributing goods
Providing services
Producers
A business that gathers raw products in their
natural state.
Raw goods – materials gathered in their original
state from natural resources such as land or water.
Industries include:
Agriculture, mining, fishing, and forestry
Processors
Change the raw materials into more finished products.
Example: Wheat is turned into flour, crude oil into
gasoline, and iron ore into steel.
May require further processing
Manufacturers
Businesses that make finished products out of
processed goods.
Turn raw or processed goods into finished goods that
require no further processing and that are ready for the
market.
Example: Automotive plant makes cars out of steel,
glass, and plastic.
Intermediaries
A business that moves goods from one business to
another.
It buys goods, stores them, and then resells them.
A wholesaler (distributor) is an intermediary.
Buys goods from a manufacturer in huge quantities and
resells them in smaller quantities to their customers (usually
other companies).
A retailer purchases goods from a wholesaler and
resells them to the consumer, or the final buyer of the
goods.
Service Business
Provide services rather than goods
Products of skill or an activity
Examples: Hairstyling, car repair
Employs about three-quarters of the workforce
and is rapidly increasing.
Worksheet Pages 36 & 40
Complete the worksheets independently
Compare your answers with a friend
Be prepared to discuss