TYPES OF BUSINESS
• Entrepreneurs need to understand the advantages and
disadvantages of various types of businesses so that
they can choose the one that best suits their needs.
• The easiest and most popular form of business
ownership is the sole proprietorship.
a business that is owned and
operated by one person
• The owner of a sole proprietorship:
receives the profits,
incurs any losses, and
is liable for the debts of the business.
• In a sole proprietorship the owner must decide how
much liability protection he or she needs.
insurance against the debts and
actions of a business
• A partnership draws on the skills, knowledge, and financial
resources of more than one person.
an unincorporated business with
two or more owners who share
the decisions, assets, liabilities,
General vs Limited
The law requires that all
partnerships have at least
one general partner.
A partnership may be set up
so that all of the partners
are general partners.
a participant in a partnership who
has unlimited personal liability
and takes full responsibility for
managing the business
• Some partnerships include a limited partner.
a partner in a business whose
liability is limited to his or her
investment; a limited partner
cannot be actively involved in
managing the business
In a corporation, the owners of the business are protected
from liability for the actions of the company.
An important element of a corporation is limited liability,
which means that its shareholders are not personally
responsible for the company's debts.
a business that is registered by a
state and operates apart from its
owners; it issues shares of stock
and lives on after the owners
have sold their interest or passed
• A nonprofit corporation must fall within one of four categories:
• public benefit
• mutual benefit nonprofit corporation
a legal entity that makes money
for reasons other than the
owner’s profit; it can make a
profit, but the profit must remain
within the company
LIMITED LIABILITY COMPANY
• There are many benefits to forming a limited liability company
limited liability company (LLC)
a company whose owners and
managers have limited liability
and some tax benefits, but which
avoids some restrictions
associated with Subchapter S
LIMITED LIABILITY COMPANY
• LLC is simpler to set up than a corporation
• LLC allows for the flexibility of a partnership structure
• LLC protects its owners with the limited liability of a
corporation, its members are not liable for the company’s
• LLX is not subject to double taxation. Provides the pass-
through tax advantages of partnership. Profits are taxed
personally, and shareholders are taxed only once.
ASSESSMENT OF THE ENVIRONMENT
(INTERNAL AND EXTERNAL)
THE MEANINING OF THE BUSINESS
The external environment is everything outside an
organization that might affect it. An organization's
external environment consists of two layers: The
general environment - refers to those nonspecific
dimensions and forces in an organization's
surroundings that might affect its activities. It
includes all PEST factors.The task environment -
refers to those specific organizations or groups that
are likely to influence an organization. It consists of
competitors, customers, suppliers, regulators,
unions and owners.
• The following techniques are used to assess the internal and external
• 1. PEST / STEP Analysis - used to analyze the external environment
• 2. SWOT Analysis - used to analyze both the internal and external
• 3. Porter's Five Forces Model - used to analyze an industry in which
an organization operates.
• What is PEST analysis
• PEST analysis is an analysis model examining the
external environment and the global factors that may
affect a business. It can provide a quick understanding of
the external pressures facing a business and their
possible constraints on its strategy. It is usually divided
into four external influences on a business – Political,
Economic, Social and Technological.
• The Political/legal Environment.
• The political/legal environment consists of the law and
interpretation of laws that require firms to comply with
.Ignorance or noncompliance with the laws, could result
• Economic Environment .
• The economic and competitive forces in the general
environment influence business organizations and
customers' decision and activities.
• Social/cultural Environment
Analysis of the social environment is concerned with understanding
the potential impacts of society and social changes on a business,
its industry and markets. This may include changes in Tastes,
fashion, lifestyle, preferences etc.
• Technological Forces
• The technological environment represents the application of
knowledge based on discoveries in science, inventory and
innovations. New technology results in new products and services
for consumers, improved existing products and often lower prices
through the development of more cost-efficient production and
distribution methods. Technology affects the types of products that
organizations can offer.
• What is SWOT analysis?
• SWOT analysis involves looking at the internal
strengths and weaknesses of a business and
external opportunities and threats. It is used to
analyze the possible internal advantages and
problems that a business has, and helps determine
the external factors of the business which may
affect its strategy. A SWOT analysis helps to
conduct a quick analysis of a business’s current
position so that it can help the business to develop
or plan a direction of development or a proper
strategy in future.
WHAT ARE PORTER'S FIVE FORCES?
• Porter's Five Forces is a model that identifies and analyzes five
competitive forces that shape every industry and helps determine an
industry's weaknesses and strengths. Five Forces analysis is
frequently used to identify an industry's structure to determine
corporate strategy. Porter's 5 forces are:
1.Competition in the industry
2.Potential of new entrants into the industry
3.Power of suppliers
4.Power of customers
5.Threat of substitute products