MIE 201 Exam 2

Shamblin, Fall 2026, Chapter 4, 5 & 8

Sole Proprietorship

• Business owned and operated by one individual

• Mots common form of business in the US

• restaurants, hair salons, flower shops, dog kennels, independent contractors

Advantage of Sole Proprietorship

Advantage

• Formation is easy and inexpensive

• greatest degree of secrecy

• all profits belong to the owner, not shared with partners or stockholders

• Owner has complete control over the business and make decisions without approval

• The most freedom from government regulation

• Profits are considered personal income and taxed at individual rates

• Can easily be dissolved

Disadvantage of Sole Proprietorship

• Unlimited liability in meeting debts of the business

• limited source of funds

• must be able to perform many functions and possess many skills in diverse fields

• Lack of continuity

• lack of qualified employees

• double taxation

Partnership

An association of two or more persons who carry on a coowners of a business for profit

• least used form of business

General Partnership

Involves complete sharing in the management of the business

Limited partnership

One general partner assumes unlimited liability, and one limited partner whose liability is limited to their investment of the business

What are articles of partnership?

Legal documents that set forth the basic agreement between partners

• usually list money or assets that each partner has contributed

Advantages of partnerships

• Ease of organization

• Availability of capital and credit

• Combined knowledge and skills

• Decision making, react quicker than larger businesses

• Regulatory controls

Disadvantages of Partnerships

• Unlimited liability

• Responsibilities and Conflicts

• Distribution of profits

• Limited sources of funds

• quasi-taxable organizations

Corporation

A legal entity created by the state whose assets and liabilities are separate from its owners.

Stock

Shares of the business owned by many individuals and organizations (stockholders)

Dividends

Profits distributed to stockholders in the form of cash payments

Corporate Charter

Based on information in articles of incorporation and issued by the state. Owners then hold and organizational meeting at which they establish the corporation’s bylaws and elect a board of directors

• bylaws might set up committees of the board of directors and describe the rules and procedures for their operation

Domestic corporation

Corporation does business in the state in which it is chartered

Foreign Corporation

Corporation does business in other states

Alien Corporation

Corporation does business outside the nation in which it is incorporated

Private Corporation

Owned by one or few people who are closely involved in managing the businesses

• these people own all of the corporation’s stock, no stock is sold to the public

Public Corporation

A corporation whose stock anyone can buy, sell or trade

Quasi-public Corporation

Corporations owned and operated by the federal state or local government.

• Focus of these entities is to provide a service to citizens, such as mail delivery, rather than earning a profit

Nonprofit Corporation

Focus on providing a service rather than earning a profit

• NOT owned by the government

• American Red Cross, Habitat for Humanity

If a private corporation needs more money to expand or to take advantage of opportunities may have to obtain financing by…

“going public” through an initial public offering (IPO), becoming a public corporation by selling stock to be traded in markets

What are elements of a corporation?

• board of directors → elected by stock holders to oversee operation and set objectives

• stock ownership →preferred or common stock, preferred have claim to profits before any other stockholders, common stock are voting owners of a corporation

Advantages of Corporation

• limited liability

• ease of transfer of ownership

• Perpetual life

• external sources of funds

• expansion potential

Disadvantages of corporations

• double taxation

• $$$ cost of formation

• Disclosure of information

• employee-owner separation

Joint Venture

A partnership established for a specific project or for a limited time

• may be shared equally, or one partner may control decision making

• popular in situations that call for large investments like extraction of natural resources or development of new products

S Corporations

A form a business ownership that is taxed as though it was a partnership

• net profits or losses of the corporation pass to the owners and eliminates double taxation while retaining limited liability

Limited Liability Companies (LLC)

A form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership.

• relatively new in US, have existed for many years abroad

Cooperatives (co-op)

An organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization

• exist in small farming communities, purchase supplies in large quantities and pass the savings on to its members

• Ex. Ocean Spray, Ace Hardware

What is a merger?

Two companies combine to form a new company (usually corporations)

What is an aquisition?

Occurs when one company purchases another, generally by buying most of its stock

What is a leveraged buyout?

A group of investors borrow money from banks and other institutions to acquire a company or a division of one using assets of the purchased company to guarantee repayment of the loan

Entrepreneurship

Process of creating and managing a business to achieve desired objectives

• many large businesses began as small businesses based on the vision of their founder

  • rather than inventing a major new technology, an innovative company may take advantage of technology to create new markets

Micro-entrepreneurs

Entrepreneurs with five or fewer employees

Social entrepreneurs

Individuals who use entrepreneurship to address social problems. Operate by the same principles but view their organizations are vehicles to create social change

Small business

Any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people

Why are small businesses so important to the American economy?

More than 99% of all US firms are classified as small businesses and employ about half of private workers.

Small firms are also important as exporters and represent 97% of US exporters of goods

SBA

Small business administration

• Independent federal agency that offers managerial and financial assistance to small businesses

Retailing

Acquire good from producers or wholesalers and sell them to consumers

• attracts entrepreneurs because gaining experience and exposure is relatively easy.

• all they need is the ability to understand the market and satisfy a need

Wholesalers

Provide both goods and services to producers and retailers.

• Supply products to industrial, retail and institutional users for resale or use in making or providing products

Services

Businesses that do not actually produce tangible goods

• performance or any effort to provide something of value that cannot be physically possessed

• Real estate, insurance, personnel agencies, hair salons, banks, television, tech repairs, dry cleaners and accounting firms

Manufacturing

Provides unique opportunities for small businesses and allows them to customize products to meet specific customer needs or wants

Technology

High technology is a term used to describe businesses that depend on heavily advanced scientific and engineering knowledge

• businesses in high technology require greater capital and have a higher start up cost than other small businesses

Sharing economy

Economic model involving the sharing of underutilized resources

• Entrepreneurs can earn income by renting out a resource like lodging or vehicles

Gig economy

Refers to an economic model involving independent contractors selling their services on-demand

Advantages of small businesses

• Independence (being your own boss)

• Costs (require less money to start and maintain)

• Flexibility (able to adapt to changing market)

• Focus/Market niche

• Easily develop reputation

What do small business do to manage expenses for business services?

Hire other firms to supply services such as accounting, advertising and legal counseling

What is a market niche?

Catering to a specific group of customers

Disadvantages of small business ownership

• High stress level (competition, employee issues, rent increase or market change)

• High failure rate

• Undercapitalization (lack of funds)

• Managerial inexperience/incompetence

• inability to cope with growth

What percent of small businesses fail to make it past the first year of operation

20%

What is a business plan?

A precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals

How might a small business owner find funds to start their business?

Using equity financing and include their personal resources as equity such as ownership of a home, life insurance policy or savings account.

• Can also bring in useful personal assets like computer, furniture or a car

Venture capitalists

Persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock

Franchise

License to sell another’s products or to use another’s name in business

Franchiser

The company that sells the franchise

Franchisee

Purchaser of a franchise

• acquires the rights to a name, logo, methods of operation, national advertising, products and other elements associated with the franchiser’s business

SBDCs

Small business development centers funded by SBA

• business clinics that provide counseling and training at a nominal cost

SCORE and ACE

Service Corp of Retired Executives and Active Corp of Executives

• volunteer agencies funded by the SBA to provide advice for owners of small firms

How does demographic impact small businesses?

Baby boomers consists of 72 million americans and the wealthiest segment of the population but many small businesses do not actively pursue it

How has technology changed small businesses?

• created new opportunities for small companies to expand their operations abroad

• allow small companies to customize their services quickly to international customers

Intrapreneurs

take responsibility for the development of innovations of any kind within the larger organization

Operations Management

The development and administration of the activities involved in transforming resources into goods and services

What terms do we use to represent activities and processes to make tangible products?

Manufacturing and production

What term do we use to describe processes making both tangible and intangible products?

Operations

The transformation process through which ___ are converted into ____

inputs (labor, money, materials, energy), products (goods, services, ideas)

Describe the transformation process of an airline

Inputs like employees, time, money and equipment through processes like booking flights, flying planes, maintaining equipment and training to produce flying passengers or packages to destinations

Describe the transformation process of a non-profit

Money, food and volunteer labor transform raw materials into meals. Process may include fund-raising and promoting cause to gain new volunteers or donations

What is a challenge related to service operations?

The final product is generally intangible or perishable, few services can be saved, stored, resold or returned

What are considerations to make when operating a service business?

• services vs tangible products

• input uniformity

• product uniformity

• labor required

• productivity measurement

What should a company determine before making a product?

What customers want and how the product satisfies that want

What kind of marketing do companies use to determine the goods and services to provide and the features they must possess?

Customer-Driven Marketing

Standarization

Making identical, interchangeable components or complete products

• customer may not get exactly what they want, but the product costs less than something designed for them

Modular Design

Building an item in self-contained units or modules that can be combined or interchanged to create different products

Customization

Making products to meet a particular customer’s needs or wants

• generally unique products

Blockchain

A secure database records all transactions and is spread across multiple computers. Different from other databases because it stores data in blocks chained to the previous block in chronological order

Capacity

Refers to the maximum load that an organizational unit can carry or operate.

Why is facility location important to consider?

Because once the decision is made and implemented, the firm must live with it due to high costs involved

Fixed position layout: what companies use this design?

Brings all resources required to create the product to one location

• project organizations, large, complex products

Process layout: what companies use this design?

Organize the transformation process into departments that group related processes

• intermittent organizations, deal with products of lesser magnitude

Product layout: what companies use this design?

Production is broken down into simple tasks assigned by workers that are positioned along the assembly line

• continuous manufacturing organizations

How does CAD help the transformation process?

Computer-assisted design, helps engineers design components, products and processes on the computer instead of paper

How does CAM help the transformation process?

Computer-aided manufacturing, employs specialized computer systems to guide and control transformation process

Flexible manufacturing

Computers direct machinery to adapt to different versions of similar operations

Computer-integrated manufacturing

A complete system that designs products, manages machines and materials and controls the operations function.

What are some sustainability issues associated with companies?

Pollution of land, air and water, climate change, waste management, deforestation, urban sprawl, protection of biodiversity, GMOs

Supply Chain Management: what activities does it include?

Connecting and integrating all parties or members of the distribution system in order to satisfy customers

• logistics, procurement, inventory management, outsourcing, routing and scheduling

Procurement

The processes to obtain resources to create value through sourcing, purchasing and recycling materials and information

• purchasing involves buying all of the material needed by the organization

Define inventory, what are the three basic types?

Every raw material, component, completed or partially completed product and pierce of equipment a firm uses

• Finished goods inventory: products ready for sale

  • Work-in-process: partially completed products

  • Raw materials: all materials that have been purchased and used as inputs for making other products

What is inventory control?

The process of determining how many supplies and goods are needed and keeping track of quantities on hand, where each item is, and who is responsible for it

Economic Order Quantity Model

Identifies the optimum number of items to order to minimize the costs of managing them

Just-in-Time Inventory

Eliminates waste but using smaller quantities of materials that arrive “just in time” for use in the transformation process and therefore requires less storage space

Materials-requirements planning

A planning system that schedules the precise quantity of materials needed to make the product

Quality control

The processes and organization uses to maintain its established quality standards

ISO 9000

Quality management standards, provide framework for documenting how a business keeps records, trains employees, test products and fixes defects

ISO 14000

Comprehensive set of environmental standards that encourages a cleaner and safer world

Goal is to promote more a more uniform approach to environmental management and to help companies attain and measure improvements in environmental performance.

ISO 19600

Provides guidance for establishing, developing, implementing, evaluating, maintaining and improving an effective and responsive compliance management system within an organization