Chapter 6
Business Structures
Warm-UP
Think about the four types of businesses Extractors, Manufacturers, Marketers, Service Businesses
If you were to start your own business, which type of business would it be?
Come up with a nameWrite two or three sentences describing your
businessWhere would you put this business?What other information do you need or concerns do
you have about running this business?
Types of Business Ownership
There are 3 major types of business ownership.
Sole Proprietorship Partnership Corporation
Sole Proprietorship
A business owned by one person Small stores – jewelry, restaurants, gas stations, hair
salons
2/3rds of U.S. businesses are sole proprietorships
Sole proprietor has complete control of all business decision
But assumes ALL risk as well (unlimited liability)
Partnership
A business owned and managed by a small group (usually two or three people) by written agreement
Owners share in profits AND share in all debts (unlimited liability)
Corporation
A business operated by multiple people, and with written permission (after filing for certificate of incorporation) from the state.
The corporation becomes its “own person” which “acts on behalf of the owners”
It is a legal entity existing separately from its owners
Read the story of creating a business
Get into three groupsGroup 1 – Sole ProprietorshipGroup 2 – PartnershipGroup 3 – Corporation
Your group will come up with at least three advantages and three disadvantages for your type of ownership
Share with class
Sole Proprietorship
Advantages Easy to start business Owner makes all the decisions and is own boss Owner receives all of the profits
Disadvantages Capital is limited to what the owner can supply or
borrow Owner is liable for all debts, even losing personal
property if business fails (unlimited liability) Long hours and hard work often necessary Life of the business depends upon owner; it ends of
owner quits or dies
Partnership
Advantages Fairly easy to start the business More sources of capital available More business skills available
Disadvantages Each partner is liable for business debts made by ALL
partners, even to losing personal property if business fails
Each partner can make decisions; more than one boss Partnership ends of partner quits or dies Each partner shares the profit
Corporation
Advantages More sources of capital available (stock) Specialized managerial skills available Owners liable only up to the amount of their
investment Ownership can be easily transferred through sale of
stock; business is not affected by change of ownership
Disadvantages Difficult to start (Certificate of Incorporation) Owners do not have control of day to day decisisons
(unless they are officers of company – CEO, president etc.)
Double Taxation
Within the hierarchy of a business, there are different levels of careers
Entry LevelCareer SustainingSpecialistSupervisorManager/Entrepreneur
Entry Level
Standard or routine activities Limited or no need for decision-making skillsLittle - No previous education or experience
necessary
Requirements: Good personal appearance Appropriate business behavior Basic math and communication skills DANCE MOVES?
Examples:• Cashier• Bagger• Counterperson• Clerk• Driver• Attendant
Career Sustaining Level
More complex dutiesRoutine decision-making skillsLimited control of one’s own working environment
Empowerment
Examples: Sales person Reservationist waiter/waitress Stockperson
Specialist
Frequent use of decision-making and leadership skills
Requirements: Mastery of skills across functions or extensive knowledge
of ones functions Thorough understanding of the concepts and functions
related to ones position
Examples: Professional salesperson, copywriter, buyer, mfg. rep.
Supervisor
High level of competence in decision-making and leadership skills
Responsible for planning, coordinating, and supervising people activities
Examples: Department manager Supervisor Shift manager Sales manager
Manager/Entrepreneur
Competence in a variety of tasks related to owning one’s own business or managing a department within an organization
Responsible for success or failure of a unit within an organization or of entire business
Examples: Merchandise manager Marketing manager Store manager Owner
Organizational Chart
Board of Ed
Franchising
A continuing relationship in which a franchisor provides the rights to the franchisee to operate or sell a product (to run a franchise).
Franchise
A franchise is a written contract granting permission to sell someone else’s product or service in a prescribed manner, over a certain amount of time, and in a specified territory. Can be operated as a proprietorship, partnership, or
corporation
Franchise
Franchisee Individual or business granted rights to
operate the business
Franchisor Parent company granting the rights to
franchisee
Franchise agreement states the Duties and rights of both parties Name and products/services offered Design and color of the building Price of products/services uniforms
Franchise
Relatively easy to start upFranchisor agrees to help franchisee get
startedNational advertising by franchisor
Franchisor collects percentage of sales or agreed upon fee each year
Usually require large start up capital
$250,000 $500,000 $750,000
Cooperatives
Cooperatives are owned by the members it serves and is managed in their interests
Similar to corporations Formation approved by state Owners may own share of stock Board of directors
US co-ops
Cooperatives
Difference between co-op and corporation is in how it is controlled Each member gets one vote (no matter how many
“shares” each member owns) or Profits are refunded to owners or put back into
business for expansion
Non-Profit Corporations
Any corporation that provides a service but not for profit
Owners do not collect payment from “profits”Profits are put back into the corporation
Ex. Some colleges, American Red Cross, Boy Scouts of
America, Future Business Leaders of America, DECA
Limited Liability Corporation
LLCProvides the limited liability features of a
corporation and the tax benefits and flexibility of a proprietorship or partnership Members are protected from personal liability for
business decisions not taxed as a separate business entity
Profits and losses are shared by each member of LLC
Members report profits and losses on their personal federal tax returns, (just like the owners of a proprietorship or partnership would)