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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.