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Business Structures Introduction to Business Chapter Six Three Types of Business Structures Sole Proprietorship Partnership Corporation Sole Proprietorship A business owned by one person. Many small businesses are sole proprietorships. Examples: – Restaurants, hair-Styling Salons – House painters, plumbers, electricians. More than 2/3’s of all businesses are sole proprietorships. The sole proprietor has complete responsibility for all business decisions and works in the business. Brett Snyder—Sole Proprietor Pack rat becomes business owner. Collecting magazines since the age of 12—rarely throws anything away! Then he discovered ebay. His website- Pastpaper.com Customers include CBS, NBC, BBC, Harpo Productions, Paramount, and A&E Biography. Stores his papers and magazines in his four-car garage. Sole Proprietor Partnerships A business owned and managed by a small group, often not more than two or three people, who are partners. The fewest number of businesses are partnerships. People join into partnerships to increase capital, share responsibilities, and pool business skills. Articles of Partnership– a written agreement that provides the details of how a partnership will operate. Includes: – Name of the business – Investment made by each partner – Salary of each partner – Duties of each partner – How profits will be distributed. Corporations A business owned by a number of people and operated under written permission from the state in which it is located. legal entity-the corporation has an existence and life separate from its owners. certificate of incorporation—written permission from the state to form a corporation. JA Estee Corporations (continued) shareholders—a corporation acts on behalf of its owners. By buying shares of stock people become owners of corporations or shareholders. dividends—part of the profits of a corporation that each shareholder receives. board of directors—a group with responsibility to guide the operations of a corporation. Their most important job is selecting a good executive team—CEO, President, CFO, CIO, treasurer. Advantages/Disadvantages Sole Proprietorship Advantages 1. Easy to Start 2. Owner makes all the decisions and is own boss. 3. Owner receives all of the profits. Disadvantages 1. 2. 3. 4. Capital is limited to what the owner can supply or borrow. Owner is liable (responsible) for all debts, even losing personal property if business fails. Long hours and hard work are required. Life of the business depends upon the owner; it ends if owner quits or dies. Advantages/Disadvantages Partnership Advantages 1. Fairly easy to start. 2. More sources of capital available. 3. More business skills available. Disadvantages 1. 2. 3. 4. Each partner is liable for business debts made by all partners, even losing personal property if business fails. Each partner can make decisions; more than one boss. People do not agree. Partnership end if a partner quits or dies. Each partner shares the profit. Advantages/Disadvantages Corporation Disadvantages Advantages 1. 2. 3. 4. More sources of capital available. Specialized management skills available. Owners liable up to the amount of their investments— Have the Corporate Shield. Ownership can be easily transferred through sale of stock; business not affected by change of ownership. 1. 2. 3. Difficult to start. Owners do not have control of decisions made each day unless they are officers of the company. Business activities are limited to those stated in the certificate of incorporation— much more regulation. Management Activities Planning Includes thinking, gathering and analyzing information. Making decisions about all phases of the business. Goals must be set and strategies devised for achieving those goals. FAIL TO PLAN, PLAN TO FAIL! Management Activities Organizing Determining what work has to be done and who will do each job. Must devise an organization chart that shows relationships of the workers in the business. Board of Directors President Julie Alcess Corporate Secretary Sue Chung Vice President Jo Rabinski Corporate Treasurer Tom Lowe Management Activities Staffing All personnel activities. Includes – – – – – – Finding Selecting Hiring Training Appraising Rewarding good performance. Management Activities Leading Influencing people to act according to company plans. Inspiring workers to willingly perform their jobs and accept their share of responsibilities. Requires good human relations skills and good communications skills. Management Activities Controlling Comparing what actually happens with what was planned. Using the standards set up in the planning stage. Establishing quality control standards, and production standards. Information gathered in this stage is used to establish goals in the planning stage. Franchises “A Business in a Box” franchise—a written contract granting permission to sell someone else’s product or service in a prescribed manner, over a certain period. Over 500,000 franchised businesses are in operation. A “Business in a box” May operate as sole proprietorship, partnership or corporation. franchisee—person or group of people who have received permission from a parent company to sell its products or services. franchisor—the parent company that grants permission to a person or group to sell its products or services. Pros of Franchises Established name recognition and product line. Easy to start. Advertising provided by the parent—may include national ad campaigns. Less risk of failure than other small businesses because of the name recognition and established business plan. Cons of Franchises Requires a large investment of capital to start. Franchisor charges a percentage of sales to cover national advertising and other services provided by the parent—cuts into your profit. Must follow all of the rules—cannot offer your own products or deviate from the franchise agreement.