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Business
Finance
Chapter 6: Business Ownership and Operations
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Types of Business Ownership
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Organizing a Business
There are three main types of business organizations: sole proprietorships, partnerships, and corporations
About three-quarters of all businesses in the United States are sole proprietorships.
A
sole proprietorship
is a business owned by one person.
A sole proprietor’s personal tax rate is often lower than the corporate tax rate.
A major disadvantage of owning a sole proprietorship is that the owner has unlimited liability.
Unlimited liability
means the owner is responsible for the company’s debts.
Limited access to credit is another disadvantage.
A third disadvantage is that the person in charge may not have all of the skills needed to run the business.
A fourth disadvantage is that the sole proprietorship ends when the owner dies.
A
partnership
is a business owned by two or more people who share its risks and rewards.
To start a partnership, you need a
partnership agreement
.
This agreement is a contract that outlines the rights and responsibilities of each partner.
Unlike a sole proprietorship, it is easier for partnerships to obtain capital.
Another advantage is that banks are often more willing to lend money to partnerships than to sole proprietorships.
Lastly, each partner brings different skills and talents to the business.
One disadvantage is that all the partners share the business risks.
Problems occur when partners do not get along or one of them decides to leave.
A
corporation
is a company that is registered by a state and operates apart from its owners.
To form a corporation, the owners must get a corporate charter from the state where their main office will be located.
A
corporate charter
is a license to run a corporation.
To raise money, the owners can sell stock, or shares in the company.
The company also must have a board of directors, who will govern the corporation.
A major advantage of a corporation is limited liability.
Limited liability
holds a firm’s owners responsible for no more than the capital that they have invested in it.
Another advantage is its ability to raise money when people buy stock.
A third advantage is that the corporation does not end if an owner dies
Corporations face several disadvantages.
They pay taxes on their income, and stockholders pay taxes on profits issued to them. That is called double taxation.
The government regulates corporations more than other types of businesses.
Corporations are also difficult and costly to start.
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Other Ways to Organize a Business
A
cooperative
is an organization that is owned and operated by its members.
When groups of businesses, such as small farms, pool their resources, they form a cooperative.
A
nonprofit organization
, or nonprofit, is a type of organization that focuses on providing a service, but not to make a profit.
A
franchise
is a contractual agreement to use the name and sell the products or services of a company in a designated geographic area.
To run a franchise, you have to invest money and pay franchise fees or a share of the profits.
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Types and Functions of Businesses
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Types of Businesses
A
producer
is a business that gathers raw goods.
A
processor
changes raw materials into more finished products.
A
manufacturer
is a business that makes finished products out of processed goods.
An
intermediary
is a business that moves goods from one business to another.
It buys goods, stores them, and then resells them.
A
wholesaler
distributes goods.
Wholesalers are also known as distributors.
A
retailer
purchases goods from a wholesaler and sells them to consumers, the final buyers of the goods.
Service businesses perform tasks rather than provide goods.
Some service businesses meet needs, such as medical clinics and law firms.
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Functions of Business
There are five main functions involved in the operation of all types of businesses.
They are production and procurement; marketing; management; finance; and accounting.
Production
is the process of creating, expanding, manufacturing, or improving goods and services.
Procurement
is the buying and reselling of goods that have already been produced.
Marketing
is the process of planning, pricing, promoting, selling, and distributing ideas, goods, and services.
Management
is the process of achieving company goals by planning, organizing, leading, controlling, and evaluating the effective use of resources.
Finance
is the business or art of money management.
It requires analyzing financial statements to make future decisions.
Accounting
involves maintaining and checking records, handling bills, and preparing financial reports for a business.
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How the Functions of Business Are Interdependent
The functional areas of business depend on each other.
Sometimes the functional areas conflict with each other.
The final plan involves ideas from all functions of business.
Companies benefit when all functional areas work together.
\
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Explore Top Notes
History-Chapter 9: How Did Singapore Safeguard Its Independence After 1965?
Note
Studied by 56 people
5.0
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Chapter 3: Law Enforcement and the Law
Note
Studied by 21 people
5.0
(1)
Moral Psychology
Note
Studied by 9 people
4.0
(1)
RSV
Note
Studied by 4 people
5.0
(1)
Chapter 22- Alkanes
Note
Studied by 14 people
5.0
(1)
AP World History Unit 7 - Lesson 7.4
Note
Studied by 259 people
5.0
(2)