Understand the nature of business.

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

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

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

Understand the nature of business.