Chapter 6Chapter 6Intro to BusinessIntro to Business

Business StructuresBusiness Structures

Types of Business OwnershipTypes of Business Ownership

Three types of business ownership:Three types of business ownership: Sole ProprietorshipSole Proprietorship-is a business owned by one person.-is a business owned by one person.

• Most are small firms-not many employees.Most are small firms-not many employees.• More than 2/3 rds of US businesses are operated as sole More than 2/3 rds of US businesses are operated as sole

proprietorships.proprietorships.

PartnershipPartnership-is a business owned and managed by a small group, -is a business owned and managed by a small group, often not more than two or three people who become partners.often not more than two or three people who become partners.

• Written agreement-these partners share the profits or losses and have Written agreement-these partners share the profits or losses and have unlimited liability for the debt of their business.unlimited liability for the debt of their business.

CorporationCorporation-is a business owned by a number of people and -is a business owned by a number of people and operated under written permission from the state in which it is operated under written permission from the state in which it is located.located.

• The written permission is called a The written permission is called a certificate of incorporationcertificate of incorporation (sometimes called articles of incorporation)(sometimes called articles of incorporation)

Types of Business Ownership-cont.Types of Business Ownership-cont.

The corporation acts as a single individual on behalf of its The corporation acts as a single individual on behalf of its owners.owners.

By buying shares of stock, people become owners of By buying shares of stock, people become owners of corporations. corporations.

• They are called They are called shareholdersshareholders, also called , also called stockholdersstockholders.. Corporations are Corporations are legal entities legal entities with an existence and life with an existence and life

separate from its owners.separate from its owners. The size and nature of a business are key factors in The size and nature of a business are key factors in

choosing the best type of ownership for it.choosing the best type of ownership for it.

Managing a Successful BusinessManaging a Successful Business

Managers are the employees who are responsible for Managers are the employees who are responsible for coordinating resources with a business-human, capital coordinating resources with a business-human, capital and natural. Management activities are focused in 5 and natural. Management activities are focused in 5 areas.areas.

1.1. PlanningPlanning-includes thinking, gathering and analyzing -includes thinking, gathering and analyzing information and then making decisions about all phases of the information and then making decisions about all phases of the businessbusiness

2.2. OrganizingOrganizing-the process of determining what work has to be -the process of determining what work has to be done and who is to do each job.done and who is to do each job.

3.3. StaffingStaffing-includes all of the activities involved in finding, -includes all of the activities involved in finding, selecting, hiring, training, appraising, and rewarding the selecting, hiring, training, appraising, and rewarding the employees of the business.employees of the business.

4.4. LeadingLeading-directing the work of the employees. Effective -directing the work of the employees. Effective leaders inspire workers to willingly perform their jobs and leaders inspire workers to willingly perform their jobs and accept their share of responsibility for accomplishing the goals accept their share of responsibility for accomplishing the goals of the business. Requires good communication and human of the business. Requires good communication and human relation skills.relation skills.

Managing a Successful Business-cont.Managing a Successful Business-cont.

• ControllingControlling-comparing what actually happens with what -comparing what actually happens with what was planned.was planned. Controlling also means using the standardsControlling also means using the standards set up in the set up in the

planning stage.planning stage. Controlling is directly related to planning.Controlling is directly related to planning.

Forming a PartnershipForming a Partnership The name of the businessThe name of the business The initial investment of all partnersThe initial investment of all partners The salaries of the partnersThe salaries of the partners The proportion that the partners will share profits and The proportion that the partners will share profits and

losses after salaries are paid losses after salaries are paid Responsibilities of all partnersResponsibilities of all partners Liquidation, distribution, and purchase rights of Liquidation, distribution, and purchase rights of

remaining partners in the event of death or withdrawal of remaining partners in the event of death or withdrawal of a partner (either of which terminates the partnership)a partner (either of which terminates the partnership)

Managing a Successful Business-cont.Managing a Successful Business-cont.

Legal responsibilities of a partnershipLegal responsibilities of a partnership Each partner can be held personally responsible for all Each partner can be held personally responsible for all

debtsdebts Including debts incurred by a partner without the consent Including debts incurred by a partner without the consent

of the other partnersof the other partners Each partner is bound by the business agreements the Each partner is bound by the business agreements the

other partners makeother partners make Forming a Forming a CorporationCorporation

Board of Directors-Board of Directors-is a group with responsibility to is a group with responsibility to guide the operations of a corporation. (compare to guide the operations of a corporation. (compare to school board) school board)

• Usually selected by a vote of the stockholders. Usually selected by a vote of the stockholders. • Board of Directors are in the highest position of authority Board of Directors are in the highest position of authority

and will make policy decisions.and will make policy decisions.• Select the executive officers of the corporation (CEO)Select the executive officers of the corporation (CEO)• These officers are responsible for the day-to-day These officers are responsible for the day-to-day

operations of the business.operations of the business.

Managing a Successful Business-CorporationManaging a Successful Business-Corporation

DividendsDividends-is the share of the corporate profits that are -is the share of the corporate profits that are to be shared by the stockholders.to be shared by the stockholders.

• The total amount to be distributed as dividends is The total amount to be distributed as dividends is determined by the board of directors.determined by the board of directors.

• The total dividends are then distributed per share of stock The total dividends are then distributed per share of stock ownership.ownership.

Specialized forms of Business OrganizationsSpecialized forms of Business Organizations Franchise-Franchise-is a written contract granting permission to is a written contract granting permission to

sell someone else’s product or service in a prescribed sell someone else’s product or service in a prescribed manner, for a certain period of time, and in a certain manner, for a certain period of time, and in a certain location or area.location or area.

Franchisee-Franchisee-is the party who has received permission is the party who has received permission from the parent company to sell the product or service.from the parent company to sell the product or service.

Franchisor-Franchisor-is the parent company granting permission is the parent company granting permission to sell their product or service. to sell their product or service.

Specialized forms of Business OrganizationsSpecialized forms of Business Organizations

• Franchises usually require a significant investment of Franchises usually require a significant investment of capital by the franchisee to get started.capital by the franchisee to get started.

• For it’s service, the franchise usually collects a percentage For it’s service, the franchise usually collects a percentage of sales or agreed upon fee from the franchisee each year.of sales or agreed upon fee from the franchisee each year.

Cooperative-Cooperative-is owned by the members it serves and is is owned by the members it serves and is managed in their interest.managed in their interest.

• Consumers cooperative-Consumers cooperative-organization of consumers who organization of consumers who buy goods and services more cheaply together than each buy goods and services more cheaply together than each person could individually.person could individually.

• Producers cooperative-Producers cooperative-producers(usually farmers) work producers(usually farmers) work together for greater bargaining power in selling their together for greater bargaining power in selling their products.products.

• Must be approved by the stateMust be approved by the state• May sell shares to it’s membersMay sell shares to it’s members• A board of directors may be chosen to guide the A board of directors may be chosen to guide the

cooperativecooperative

•Members may be allowed to vote based on the number of Members may be allowed to vote based on the number of shares they own or based upon the amount of service the shares they own or based upon the amount of service the member has bought from the cooperativemember has bought from the cooperative•Profits may be refunded to members or may be kept to Profits may be refunded to members or may be kept to expand the business.expand the business.

•Non Profit CorporationsNon Profit Corporations•Municipal Corporation or municipality-Municipal Corporation or municipality- is an incorporated is an incorporated town.town.

•It has its own ;It has its own ;•officials and central government,officials and central government,•its own schools, its own schools, •its own police, its own police, •and fire department,and fire department,• its own public works departments its own public works departments •Its own recreation departmentIts own recreation department

Cooperative-cont.Cooperative-cont.

Non Profit Corporation-cont.Non Profit Corporation-cont.

•A Municipal corporationA Municipal corporation•Levies taxesLevies taxes•Passes rules and regulations to operate Passes rules and regulations to operate effectivelyeffectively•It buys goods and services just like any other corporationIt buys goods and services just like any other corporation•It provides services to its citizens with money collected It provides services to its citizens with money collected from taxes rather than from making a profitfrom taxes rather than from making a profit•It is a nonprofit organization and there is no stock It is a nonprofit organization and there is no stock ownership.ownership.•Other examples of non-profit corporations are:Other examples of non-profit corporations are:

•Private colleges and universitiesPrivate colleges and universities•American Red CrossAmerican Red Cross•Boy Scouts of AmericaBoy Scouts of America