What is Business? How are businesses formed/organized? Business Management Unit 1
Unit Objectives Define what a business is 1 Determine the major activities of a business 2 Identify types of business 3 4 Differentiatebetweenbusiness types of ownership 5 Evaluate the advantages and disadvantages of different forms of business
Business • What is Business? • An organization that produces or distributes goods or services for a profit • Why is Business Important?
Every Organization Engages in 3 Major Activities • 3 major activities Production 1 Anything that involves making a product or providing a service. 3 Marketing Includes the activities between business and customers involved in buying and selling goods and services. 2 Finance Involves all the money matters involved in running the business
Types of Business Commercial Industrial • Providing services as their primary business activities. • Use mostly labor to offer mostly intangible products to satisfy consumer needs. • Wholesalers • Retailers • Banks • Medical offices • Fitness centers • Produce goods used by other businesses • Mine Coal • Extract Oil • Construct Buildings • Farmers 1 2
Innovation Entrepreneur • What are some of the innovations that have changed our lives in the past 40 years? • How do these innovations become a business?
Business Ownership Entrepreneur Characteristics of Entrepreneurs What is an Entrepreneur? • Work for Self • Self starters with plenty of energy • Creative thinkers • Take Charge • Decision Makers Someone who starts, manages, and owns a business is called an entrepreneur.
Forms of Business Ownership Sole Proprietorship A business owned and managed by one person 3 1 Partnership 2 A business owned by two or more people Corporation Corporation A business owned by a group of people and authorized by the state in which it is located to act as though it were a single person, separate from its owners
Proprietorship Advantages and Disadvantages • Advantages • Relativley easy form of business to start • More affordable than other forms • Owner is boss • Owner Receives all Profits • Owner personally knows employees and customers • Owner can act quickly in decision making • Less income tax than a corporation/pass thorugh taxation • Disadvantages • Lawsiuts against the business are lawsuits against the owner • Owner may lack necessary skills and abilities • Owner may lack funds • Cannot participate in benefit plans • Illness or death may close the business • Not easy to transfer ownership to heirs/probate
Partnership Advantages and Disadvantages • Advantages • Two people can pull their skills and abilites • Sources of capital increased • Credit position improved • Contribution of Goodwill • Disadvantages • Unlimited financial liability • Disagreement among partners • Each partner bound by contracts of others
Corporations Advantages and Disadvantages • Advantages • Available sources of capital • Lawsuits will be brought against the company not you personally • Not personally liable for debt • Permanency of Existence • Ease in transferring Ownership • It allows the owner/shareholder to hire yourself and participate in benefit plans • Disadvantages • Double Taxation • Government regulations and reports • Stockholders’ records • Charter restrictions
Hybrid Types • Limited Liability Compaines LLC or LLP or profesional corporations • Combines the favorable features of a corporation and a partnership/proprietorship • Pass through taxation and limited liability • S corporations • A corporation that is taxed like a partnership • Limit the number of shareholders