Understand the nature of business
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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.

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Understand the nature of business

Understand the nature of business.

2.01 Understand the types of business ownership.


Business ownership

Business Ownership

  • Sole Proprietorship

  • Partnership

  • Corporation

  • Franchise


Sole proprietorship

Sole proprietorship

  • A business owned and run by one person

  • The business is typically managed by the owner.

  • Formation varies by state.


Advantages

Advantages

  • Easy to start up

  • Complete control of the business

  • Owner receives all the profits

  • Limited taxes (one time taxation)


Disadvantages

Disadvantages

  • Limited capital (money)

  • Unlimited liability (responsible for ALL debt)

  • The business is limited to the lifetime of the owner


Partnership

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.


Advantages1

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


Disadvantages1

Disadvantages

  • Profits are shared

  • Responsible for each others decisions

  • Potential for disagreement among partners

  • Unlimited liability (depending on type)


Limited liability partnership

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

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 partnerships1

Types of Partnerships


Corporations

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


Advantages2

Advantages

  • Easier to obtain capital

  • Limited liability for shareholders

  • Life of the corporation is unlimited


Disadvantages2

Disadvantages

  • Double taxation (profits and earnings)

  • Government regulations and legal restrictions

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


Specialized corporations

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

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

    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


  • Cooperatives

    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

    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

    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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