Nature and Forms of Business Organization

Business and Personal Finance Copyright © by McGraw-Hill Education. All rights reserved.
Types of Business Ownership

Chapter
3
If you owned a small business, what type

of business ownership would best suit
your needs and future goals?
Chapter
3
Understanding and selecting the proper form of organization

for your business can be an essential factor in its success.
Chapter
3
public sector Employer Identification

private sector Number (EIN)
competition unlimited liability
price competition limited life
nonprice competition partnership
market partnership agreement
oligopoly general partner
monopoly limited partner
profit cooperative
sole proprietorship corporation
entrepreneur articles of incorporation
Chapter
3
corporate bylaws
corporate charter
board of directors
limited liability company (LLC)
franchise
Chapter
3
Chapter
3 Section 1 Private Enterprise and Business Ownership
Describe the effects of competition on businesses and

consumers.
Explain how competition impacts the consumer.
Identify the advantages and disadvantages of a sole
proprietorship.
Explain the differences between general and limited partners.
Identify the advantages and disadvantages of a partnership.
Identify the advantages and disadvantages of a cooperative.
Chapter
Private Enterprise System
Public schools Your local

are part of the supermarket is part of
public sector. the private sector.
public sector private sector

government-funded business not funded by the
services government
Chapter

Two Types of Competition
Discounts and Excellent service and

coupons are examples quality construction
of price competition. are examples of
nonprice competition.
competition
the struggle among businesses for customers
price competition
struggle for business that assumes consumers will choose the
lowest priced products available
nonprice competition
struggle for business that relies on factors other than price
to attract and keep customers
Chapter
market
field of exchange that takes place
between buyers and sellers Market
oligopoly
market condition
characterized by the Levels of
existence of a few large Competition
businesses in a market Monopoly Oligopoly
monopoly
market condition characterized by
the existence of only one supplier
in a market
Chapter

Competition
Economic
Changes
Government
Risks of Regulations
Doing
New
Business Technologies
Natural
Disasters
Lawsuits
Chapter
Who benefits when a business makes a profit?

Employees
The government (taxes)
The economy
Other businesses
Society
profit
the money left after paying the
expenses of doing business
Chapter
Business Ownership Organization
Three Legal Forms of Business Ownership
Sole
Partnership Corporation
Proprietorship
Chapter
Sole Proprietorship
A sole proprietorship is usually started

by an entrepreneur.
sole proprietorship
business owned by one person
entrepreneur
individual who takes the risk of
starting a new business
Chapter
Sole Proprietorship
Advantages of Sole Proprietorship
Easy Setup
Licensing and Paperwork
– Employer Identification Number (EIN)
Total Control
Profits to Owner
Profits Taxed Once
Few Government Regulations
Employer Identification Number (EIN)

number assigned by the IRS used for income tax purposes
Chapter
Sole Proprietorship
Disadvantages of Sole Proprietorship
Limited Capital
Unlimited Liability
Limited Human Resources
Limited Life
unlimited liability
situation in which the owner of a business is responsible to
pay the business debts out of personal assets
limited life
situation in which a business’s life span or existence is
determined by the owner’s life span or decision to terminate
the business
Chapter
The Partnership
A partnership requires a
partnership agreement.
partnership
business owned by two or more persons
partnership agreement
written document that states how a partnership will be organized
Chapter
The Partnership
Two Types of Partners
General Limited
Partner Partner
general partner
business partner who has decision-making authority,
takes an active role in the operation of the business, and
has unlimited liability
limited partner
business partner who does not take an active role in decision
making or in running the business
Chapter
The Partnership
Advantages of a Partnership
Easy Setup
More Skills and Knowledge
Available Capital
Total Control by Partners
Profits Taxed Once
Chapter
The Partnership
Disadvantages of a Partnership
Unlimited Liability
Possible Disagreement Among Partners
Shared Profits
Limited life
Chapter
The Partnership
Chapter
The Cooperative
Advantages of a Cooperative
Each member has an equal vote
Each member has some control over the business
Saving money on purchases
Pooled resources
cooperative
an organization that is owned and
operated by its members
Chapter
The Cooperative
Disadvantages of a Cooperative
All decisions must be approved
Limited flexibility
Slow decision-making
Limited capital
Retaining and recruiting new members
Chapter
You are starting your own business repairing bicycles. Your

uncle is supplying money for start-up costs. Decide whether
your uncle should be a general partner or limited partner.
Sample response: My uncle should be a limited partner

so that I can control the business and he will not lose
additional money if my venture does not work.
Chapter
3 Section 2 The Corporation
Describe two types of corporations.

Summarize the process of forming a corporation.
Discuss the advantages and disadvantages of a corporation.
Discuss the advantages and costs of a franchise.
Chapter
What Is a Corporation?
About 20 percent of businesses in the United

States are organized as corporations, but they
produce about 90 percent of the total business
revenue in the United States.
corporation
business organization that operates as legal entity that
is separate from its owners and is treated by law as it if
were an individual person
Chapter
Starting a Corporation
Articles of
Paperwork Incorporation
and Corporate Bylaws

Documents
Corporate Charter
articles of incorporation
an application to operate as a corporation
corporate bylaws
rules by which a corporation must operate
corporate charter
a license to operate a corporation
Chapter
Shares of stock in a corporation are bought by

people who become known as stockholders.
Chapter
Two Types of Corporations
Closely Held Publicly Held

Corporation Corporation
Chapter
Advantages of the Corporation
Individuals
Ability to raise capital
Limited liability
Continued life
Organizations
Separation of ownership and management
– Board of directors
board of directors
group of individuals who are responsible for
overseeing the general affairs of a corporation
Chapter
Disadvantages of the Corporation
Individuals
Complex and expensive setup
Slow decision-making process
Taxes
Organizations
Chapter
Chapter
Limited Liability Company
A limited liability company (LLC) combines

some advantages of both the partnership and
the corporation.
limited liability company (LLC)

a business that operates and pays taxes as a
partnership but has limited liability for the owners
Chapter
Franchise
If you start a franchise, you first organize

your business as a sole proprietorship,
partnership, corporation, or LLC.
franchise
a contractual agreement to sell a company’s products
or services in a designated geographic area
Chapter
Choosing the Form of Ownership
Carefully consider the advantages

and disadvantages of each form of
ownership
A sole proprietorship or partnership

may be best for a small start-up
Chapter
It is now possible to buy “do-it-yourself” incorporation kits.

Judge whether you think this is a good idea or if an attorney
should be used to handle the legal aspects of incorporating.
The kit may have all the forms, but you may not understand
how to complete them.
Chapter
3
Economic Systems
Government makes the economic
Command decisions of
Economy What to produce
How it should be produced
For whom it should be produced
Market The three economic decisions are

Economy made in the marketplace.
Chapter
3
Chapter
3
End of

Nature and Forms of Business Organization

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Nature and Forms of Business Organization

Uploaded by

Copyright:

Available Formats

Business and Personal Finance Copyright © by McGraw-Hill Education. All rights reserved.

Types of Business Ownership

If you owned a small business, what type

Understanding and selecting the proper form of organization

public sector Employer Identification

Describe the effects of competition on businesses and

Private Enterprise System

Public schools Your local

public sector private sector

Private Enterprise System

Discounts and Excellent service and

Private Enterprise System

Private Enterprise System

Private Enterprise System

Who benefits when a business makes a profit?

Business Ownership Organization

Three Legal Forms of Business Ownership

A sole proprietorship is usually started

Employer Identification Number (EIN)

You are starting your own business repairing bicycles. Your

Sample response: My uncle should be a limited partner

Describe two types of corporations.

About 20 percent of businesses in the United

and Corporate Bylaws

Shares of stock in a corporation are bought by

Two Types of Corporations

Closely Held Publicly Held

Limited Liability Company

A limited liability company (LLC) combines

limited liability company (LLC)

If you start a franchise, you first organize

Choosing the Form of Ownership

Carefully consider the advantages

A sole proprietorship or partnership

It is now possible to buy “do-it-yourself” incorporation kits.

Market The three economic decisions are

You might also like