W h at is

B u sin ess ?

Definitions of Business
Business has three dimensions of
a meaning
A commerce
An occupation
An organization

Definitions of Business
Business as a commerce is the
process that people produce,
exchange and trade goods and
services

Definitions of Business
Business as an occupation is the
acquired set of specialized skills
and abilities that allows people to
create valuable goods and
services

Definitions of Business
Business as an organization is the
system of task and authority
relationship that coordinates and
controls the interactions between
people so that they work toward a
common goal

Definitions of Business
Business as a system is a
combination of business
commerce, occupations, and
organizations that produces and
distributes the goods and
services that create value for
people in a society.

Basic forms of ownership

Sole
proprietorship
Partnership
Corporation
Cooperative

Evaluation Criteria
Tax consideration
Liability exposure
Start-up and future capital
requirement
Control
Managerial ability
Business goals
Management succession
plans
Cost of formation

Sole Proprietorship
A business owned and
managed by one
individual; the business
and the owner are one
and the same in the
eyes of the law

Sole Proprietorship
Advantages
Easy and inexpensive to create.
Owner makes all business
decisions.
Owner receives all profits.
Least regulated form of business
ownership.
Business itself pays no taxes.

Sole Proprietorship
Disadvantages
Owner has unlimited liability for all debts and
actions of the business.
Unlimited liability:
The debts of the business may be paid from
the personal assets of the owner.

Difficult to raise capital.

Sole proprietorship is limited by his/her skills
and abilities.
The death of the owner automatically
dissolves the business.

Partnership
An association of two or
more people who co-own a
business for the purpose of
making a profit.
They also co-own the assets
and jointly responsible for
the liabilities.

Types of Partnerships
General partnership: A partnership in which all
partners have unlimited personal liability and take
full responsibility for the management of the
business.
Limited partnership: A partnership in which the
partners liability is limited to their investment.
Joint venture: A partnership in which two
companies join to complete a specific project. The
partnership ends after a specified period of time.
Strategic alliance: A partnership in which two
businesses work together for mutual benefit.

Partnership
Advantages

Disadvantages

Easy to establish

May lead to
disagreements.

Complementary skills
Division of profits
Larger pool of capital
Ability to attract limited partners
Little governmental regulation
Flexibility
Taxation

Some partners are

not willing to share
responsibilities and profits.
Some partners fear being
held legally liable for the
error of their partners.
Each owner has unlimited
liability

Corporation
A separate legal entity
apart from its owners which
receives the right to exist
from the state in which in
which it is incorporated.
It is recognized as a separate
entity from its owners.

Corporation
Advantages
Limited liability of stockholders
Limited liability: Owners are liable only
up to the amount of their investments.

Ability to attract capital

Ability to continue indefinitely
Transferable ownership
Can hire experts to
professionally manage each
aspect of the business.

Disadvantages
Cost and time in incorporating
Double taxation
Potential for diminished
incentives
Legal requirements and red tape
Potential loss of control
Corporations are subject to more

government
regulations than partnerships
or sole proprietorships.

Cooperative
A business or organization owned by and
operated for the benefit of those using its
services. Profits and earnings generated
by the cooperative are distributed among
the members, also known as user-owners.
Democracy is a defining element of
cooperatives. The democratic structure of
a cooperative ensures that it serves its
members' needs.

Corporation
Advantages
Less Taxation.
Reduce Costs and
Improve Products and
Services.
Less disruption and
more continuity to the
business.
Democratic Organization.

Disadvantages
Capital collection
Lack of Membership and
Participation.