Understand the nature of business.

Report
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
Relationship
Degree of
Liability
in the
Business
Dormant Not active
to the
Public
Unknown
Unlimited
General
Active
Known
Unlimited
Limited
Not active
Known
Limited
Secret
Active
Unknown
Unlimited
Silent
Not active
Known
Unlimited
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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
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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

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