5. Sole Proprietorship
• A sole proprietorship is a business
owned by only one person.
• About three-quarters of all businesses in the
United States are sole proprietorships.
• Ex: Florists, Auto Repair, farms, home-based
businesses
6. It’s Easy to Start:
You may only need a license or permit
Proprietors are their own Boss:
Come & Go as you please! Do it your way!
Proprietors keep all the profits:
Everything is yours…spend it as you wish!
Low Taxes:
Only pay taxes on your personal profits!
7. Unlimited Liability
Owners are responsible for
the company’s debts.
Limited Access to Credit
Business owners might have
to use their own capital and
borrow against their own
savings.
USUALLY A REASON FOR
FAILURE
May Run Out of Money
You have to buy your own
supplies, pay for advertising,
rent office space and pay
taxes
Business Ends when the
owner dies.
May lack necessary skills
Might have to hire more
people.
8. Is started by forming a partnership
agreement:
Partnerships:
A business owned by two or more people
who share its risks and rewards.
Ex: Law Firms, restaurants, construction
9. Key Questions of Starting a
Partnership
You must decide:
How much money will each of you invest?
How will you share the profits?
How will you share the work?
How will you end the partnership?
If one partner decides to leave the
business, the partnership legally ends
10. Very Easy to Start
May only need a license to start.
Only Taxed Once
Only pay taxes on all your personal profits.
Easier to Obtain Capital
All partners contribute money to start
business.
11. Diversity in Skills
Each partner may bring different skills to
the business.
Easier to Obtain Credit
Banks more willing to lend money to
partnerships.
Not Dependent on a Sole Person
Business can survive if owners leave.
12. Business Risk is Shared
Owners are responsible
for the company’s debts.
Unlimited Financial
Liability
All business owners might
have to use their own
capital and borrow
against their own savings.
Unlimited Legal
Liability
All owners can be held
personally responsible for
contracts and accidents.
Partners may not get
along
If a partner makes a
mistake, all are
responsible.
13. Late one night you are working in your kitchen melting
peanut butter and gummy bears together and you
accidently come up with a new product you decide to
call “Gummy Butter.” The next day at school you have
samples of the butter for your friends to try. It is a HUGE
HIT! Later, you hear your friend Sally Creamcheese
talking to her boyfriend Moose about how she would
like to be your partner in producing this new venture.
What should you do?
Make “Gummy Butter” a sole proprietorship or go with Sally and
make it a partnership?
Explain your answer.
14. A Quick Summary…
Similarities and Differences Between
Partnerships and Sole Proprietorships
Increased
diversity of
experience
Shared losses
Combined
funds
Both
Pride in
owning and
running business
Easy to set up
Low taxes
Unlimited liability
for debts
Huge time
demands
Quicker
decision
making
Owner keeps
all profits
Owner is
own boss
Relatively easy
to get credit
Partnerships Sole Proprietorships
Shared
decision
making
15. To form a corporation, owners must get a
corporate charter from the state where their
main office will be located:
Corporation:
A company that is registered by a state and
operates apart from its owners.
Ex: Dept. Stores, Banks, Technology Companies
16. How To Start a Corporation
You must:
File a corporate charter with the state your
headquarters is in.
A Corporate Charter is a license to run a
corporation.
Must file a Certificate of Incorporation through
the Department of State’s Division of
Corporations.
Corporation will need a federal
taxpayer ID #.
17. Easy to Raise Money and Collect Profits
Stock is sold to raise money.
Do this as often as you need too.
Stockholders own the corporation
Stockholder gets share of profits for every share owned
Also a “vote” per share for how company is run.
Board of Directors Control the Corporation
You don’t run the overall direction of company.
Corporation does not end if owners sell shares
Corporation does not end if owners sell shares.
18. Double Taxation:
All income is taxed.
Stockholders pay taxes on profits issued to them.
More Government Regulation
Much “Red Tape” to navigate—time consuming.
Difficult and Costly to Start
Start-up process with the state is expensive.
21. The purpose of a cooperative is to save money on
certain goods and services.
Cooperative:
An organization that is owned and operated by its
members.
Exists as a separate entity from individual business.
Pay lower taxes than corporations
Run by Board of Directors.
Members pool their resources to save money.
22. To run a franchise you have to invest money or
pay a franchise fees or share your profits with the
franchisor.
Franchise:
A contractual agreement to use the name and sell
the products or services of a company in a
designated geographic area.
Franchisor offers well-known name and business plan
If you want to start a business but lack business
expertise, a franchise would be a good choice.
23. A non-profit organization does not pay taxes
because it does not make a profit.
Non-Profit Organization:
A type of business that focuses on providing a
service and not making a profit
Does not pay taxes.
Relies on government grants and donations
Donors deduct donations from their taxes.
24. 1. What is the difference between a sole
proprietorship and a partnership?
1. A sole-proprietorship is owned by one person. A
partnership is owned by two or more people.
2. If a partner makes a bad decision, what
responsibility do the other partners have?
1. All partners share responsibility for a bad decision.
3. Why are cooperatives formed?
1. So that the members have advantages in buying
and selling products and services.
26. There are many different types of businesses that require
several different functions that enable each to operate on a daily
basis.
Types of
Businesses
Functions of
Businesses
• Producers
• Processors
• Manufactures
• Intermediaries and
Wholesalers
• Retailers and Service
Businesses
• Production and
Procurement
• Marketing
• Management
• Finance and
Accounting
27. There are 5 types of Business:
1. Producer:
A business that gathers raw goods from their
natural state.
Ex: Agriculture, Mining, Fishing or Forestry
28. There are 5 types of Business:
2. Processor:
A business that changes raw materials into more
finished products.
Ex: Turning wheat into flour. Crude oil into gas.
29. There are 5 types of Business:
3. Manufacturers:
A business that makes finished products out of
processed goods and gets them ready for sale.
Ex: A bakery makes bread out of flour
30. There are 5 types of Business:
4. Intermediaries and Wholesalers:
Intermediary:
A business that moves goods from one business to
another.
Ex: They buy them, store them, & resell them.
31. There are 5 types of Business:
4. Intermediaries and Wholesalers:
Wholesalers:
A wholesaler, also known as a distributor, distributes
goods—moves them from one business to another.
32. Intermediaries
Wholesalers buy goods from manufacturers in
huge quantities and resell them in smaller
quantities to their customers, usually other
companies.
33. There are 5 types of Business:
5. Retailers and Service Businesses:
Retailers:
A business that purchases goods from a wholesaler
and sells them to consumers—the final buyers.
34. There are 5 types of Business:
5. Retailers and Service Businesses:
Service Businesses:
Businesses that perform tasks rather than provide
goods.
Employ about ¾ of nation’s workforce.
Ex: Car Repair and Hairdressers.
36. There are 5 Functions of Business:
1. Production and Procurement:
Production:
The process of creating, expanding, manufacturing,
or improving goods and services.
Procurement:
The buying and reselling of goods and services that
have already been produced.
37. There are 5 Functions of Business:
2. Marketing:
The process of planning, pricing, promoting,
selling, and distributing ideas, goods and services.
3. Management:
The process of achieving company goals by
organizing, directing, controlling, and evaluating
the effective use of resources.
38. There are 5 Functions of Business:
4. Finance:
Requires analyzing financial statements to make
future decisions.
The business or art of money management.
5. Accounting:
Includes the maintaining and checking of records,
handling bills, preparing financial reporting for a
business
Must have a high attention to detail and accuracy.
39. How are the Functions of Business are
Interdependent…
The functional areas of a business
depend on each other.
Sometimes the functional areas of a
business conflict with each other.
40. Example of How Functional Areas Depend on Each Other
A furniture maker’s sales are decreasing.
The accounting and finance department notice decreasing sales.
If the furniture is too highly priced, more efficient procedures will have to be
implemented.
A new marketing plan is created.
The accounting and finance department will monitor the effects of new
marketing efforts.
41. Example of How Functional Areas Conflict with Each Other
Management wants to increase sales by 20 percent within three years.
The production department suggests improving quality.
The marketing department requests more funds for projects.
Accounting says there is not enough money for either plan.
The final plan involves ideas from all the functions of business.
42. 1. What is the different between a producer and a processor?
1. A producer gathers or creates raw products. A processor changes
raw products into more finished products.
2. Identify the five functions of business.
1. Production and procurement, marketing, management, finance,
and accounting.
3. Give an example of how the accounting and finance functions
can affect a business’s marketing/production processes.
1. If the financials show little profit, new marketing plans may be
developed and new production procedures may be implemented.
