L:\Principles Of Business Notes\2 01 Notes
- 1. I. Main Types of Business Ownership Table Type Sole Proprietorship Partnership Corporation Owner(s) One person Two or more people One or more shareholders, who has one vote per share Manager(s) May be owner Determined by Managers, board of partnership directors, and agreement shareholders Formation Begin buying and Vary by states Filing of an article of selling goods or incorporation with services, plus may state government vary by states Advantages 1. Easy to form 1. More capital and 1. Capital easy to 2. Complete control of credit available obtain business than a sole 2. Limited liability for 3. Recipient of 100% proprietorship shareholders of the profit 2. Work load shared 3. Possibility unlimited 4. One time taxation 3. Losses shared lifetime Disadvantages 1. Limited capital 1. Profits shared 1. Double taxation: 2. Unlimited liability 2. Decisions made profits and 3. Limited lifetime of jointly earnings owner 3. Unlimited liability 2. Government depending on regulations partnership type 3. Operations controlled by shareholders and board of directors instead of original owner(s) 6200/6600 Principles of Business and Finance Summer 2010 Page 77
- 2. Type Sole Proprietorship Partnership Corporation Liabilities 1. Employment 1. Employment 1. Employment 2. Accidents and 2. Accidents and 2. Accidents and injuries on injuries on injuries on premises premises premises 3. Company vehicle- 3. Company vehicle- 3. Company vehicle- related related related 4. Product-related 4. Product-related 4. Product-related 5. Errors and 5. Errors and 5. Errors and omissions omissions omissions 6. Directors and officers Examples of 1. Employment: Manager fires an employee that missed significant liabilities days from work. 2. Accidents and injuries on premises: Customer breaks a leg while on business property. 3. Accidents and injuries on premises: Driver runs into a building while driving company’s car. 4. Product-related: Toddlers are easily injured by a sharp edge of a toy. 5. Errors and omissions: Employee accidentally damages a customer’s property. 6. Directors and officers: One food ingredient that may cause cancer is intentionally omitted from package. Termination Decision or life of Actions of the Determined by charter owner partners, or unlimited lifetime bankruptcy, death, and/or court order Source(s) of Personal, gifts, Personals of Purchase of stocks investment borrowed, and others partner(s), gifts, may vary borrowed, and others may vary Examples of Answers will vary. • South Railroad • Bank of America business Limited Partnership Corporation ownership • Eden Limited • Lowe’s Home Partnership Improvement Store II. Other types of business ownership A. Specialized partnership Limited liability partnership B. Types of partnerships 1. Dormant partner 2. General partner 3. Secret partner 4. Silent partner 6200/6600 Principles of Business and Finance Summer 2010 Page 78
- 3. C. Specialized corporations 1. Subchapter/S-corporation 2. Limited liability company 3. Nonprofit corporation D. Types of corporations 1. Domestic Example: SAS Institute, Inc. 2. Foreign Example: 1-800-flowers.com 3. Alien Example: Toshiba 4. Public 5. Private E. Cooperatives F. Franchise formats 1. Business-format franchise 2. Product trade-name franchise 6200/6600 Principles of Business and Finance Summer 2010 Page 79
- 4. 2.1 Types of Business Ownership Key Terms Crossword Puzzle Directions: Fill in the crossword puzzle using the provided definitions. 6200/6600 Principles of Business and Finance Summer 2010 Page 80
- 5. Types of Business Ownership Key Terms Crossword Puzzle Continued Across 5. Two or more persons to carry on as co-owners of a business for a profit. 9. Each stock equals one _______ at the shareholder meeting. 10. Type of liability in which you can lose all your assets. 16. Formed by the way two or more people conduct their business (4 words). 17. Entity with the legal authority to act as a single person. 18. Partner has an active role, but unknown existence. 19. Grants permission to sells its products and services as a business. Down 1. Business owned by one person (two words). 2. Partnership formed after they agree to conditions in a contract (two words). 3. Type of corporation that benefits the public and receives a tax break. 4. Abbreviation for a partnership with limited liability. 6. Partner has no role, but is known to public. 7. Type of taxation on a corporation. 8. Type of liability in which you only lose your initial investment in the company. 11. Partner plays no role and is not known to public. 12. __________ of incorporation. 13. Partner has an active role, unlimited liability. 14. Formed by a group to gain bargaining power. 15. __________venture is a special project for a limited time. 6200/6600 Principles of Business and Finance Summer 2010 Page 81
- 6. Best Form of Business Activity Directions: Read the scenarios and provide responses in your own words to the questions in the spaces provided. Scenario 1 Mary makes jewelry for her own business named The Design For You. She needs help in completing orders to make necklace and earring sets in a timely manner. Mary prefers working alone at her own pace. Mary’s cousin named Greg has expressed interest in starting a business too. He likes using his hands, designing things, and has access to jewelry making tools too. 1. Should Mary hire Greg to help her make the orders for jewelry or form a partnership with him? __________________________________________________________ 2. Compare the advantages and disadvantages of hiring Greg and remaining as a sole proprietorship. ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ 3. Compare the advantages and disadvantage of forming a partnership with Greg ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ Scenario 2 Teri enjoys assisting other students with their homework. Her neighbor named Francis volunteers in assisting younger students with their homework in an after school program. Teri and Francis talked about forming a partnership and expanding their services. 1. Should Teri and Francis form a partnership? _______________________________ 2. Compare the advantages and disadvantages of them forming a partnership ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ 6200/6600 Principles of Business and Finance Summer 2010 Page 82
- 7. Best Form of Business Activity Continued Jade and John own and operate several ice cream stores. Jade is interested in expanding the business by offering additional services and opening more locations. John reminded Jade that they will need more resources in order to expand. Jade suggested that they offer shares to relatives to finance the expansion. 1. Should Jade and John form a corporation? ________________________________ 2. Compare the advantages and disadvantages of them forming a corporation. ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ ___________________________________________________________________ 6200/6600 Principles of Business and Finance Summer 2010 Page 83
- 8. Name_________________________ Class _________________ Date _________ Sole-Partners-Corporate Activity Directions: Work as a sole proprietor, partnership, or corporation to provide responses to the scenarios in the space provided. Be prepared to present your findings. Sole Proprietorship Scenario Mary Jones operates her own staffing agency. Mary has about 30 steady employers that request her services to send temporary workers for various jobs. She handles all the financial, advertising, operations, and management issues for the agency. Mary used a gift of $10,000 from her grandmother to start the agency. She would like to expand the agency. She uses all her profit to sustain her personal living arrangements. After seven days of constant rain, Mary realized soon after the rainy days that water is leaking from several places of the roof. She is planning to borrow money to have the roof repaired. Complete the table using information from the scenario Type Sole Proprietorship Owner(s) Manager(s) Advantage(s) Disadvantage(s) Source(s) of investment Other information Consider the responses to the above items, what should the business owner do with the business? Why? 6200/6600 Principles of Business and Finance Summer 2010 Page 84
- 9. Name_________________________ Class _________________ Date _________ Sole-Partners-Corporate Activity Directions: Work as a sole proprietor, partners, or corporation to provide responses to the scenarios in the space provided. Be prepared to present your findings. Partnership Scenario Max and Tim enjoy skiing so much that they are thinking about opening a ski resort. Max recently inherited about 100 acres of land in the mountains. This amount of land will easily accommodate a ski resort. Tim has about $30,000 in his saving account. Tim’s neighbor operates a successful business. Both of them have limited knowledge about operating a business. They talk about offering ski slopes, equipment, housing, food, and entertainment at the resort. Max may have to continue working his full-time job as a teacher even once they opened the resort. Tim is ready to quit his job as an attorney right away and start the business. Complete the table using information from the scenario Type Partnership Owner(s) Manager(s) Type of partners should be considered Advantage(s) Disadvantage(s) Source(s) of investment Other information Consider the responses to the above items, what should they with their resources and desire to open the ski resort? Why? 6200/6600 Principles of Business and Finance Summer 2010 Page 85
- 10. Name_________________________ Class _________________ Date _________ Sole-Partners-Corporate Activity Directions: Work as a sole proprietor, partners, or corporation to provide responses to the scenarios in the space provided. Be prepared to present your findings. Corporation Scenario A company wants to expand to several other cities. The board of directors proposed the option of selling 300 more shares to obtain the funds. The company stock value has decreased about 1% over the past year. The corporation has earned an average profit of over $40,000 for the past three years. Complete the table using information from the scenario Type Corporation Owner(s) Manager(s) Advantage(s) Disadvantage(s) Source(s) of investment Other information Consider the responses to the above items, should the company pursue its expansion plans? Why? 6200/6600 Principles of Business and Finance Summer 2010 Page 86
- 11. Note: These assessment prototypes are examples of the types of items included in the item bank. All items are comparable to the cognitive process of the understand verb. Questions require students to demonstrate that they understand the content. Assessment prototypes will not be used on the secured test, but questions in similar formats will be used. A company sold 500 shares of stock and still relies on a central body of people for financial directions. This is an example of what type of business? A. Cooperative B. Corporation C. Partnership D. Sole Proprietorship ANSWER: Joe invested $500,000 into his sole proprietorship. He lost a $1 million lawsuit and does not have any liability insurance. As a result of the lawsuit, how much will he have to pay? A. $0 B. $500,000 C. $750,000 D. $1,000,000 ANSWER: Wendy is free of obligation of a role in her business and is an unknown partner, but she collects some of the profits each month. This is an example of what type of partner? A. Dormant B. Limited C. Silent D. Secret ANSWER: Mary works alone in her catering business and enjoys scheduling her daily routine. She is experiencing which advantage of a sole proprietorship over a corporation? A. Owner control of decisions B. Owner limited life C. Owner recipient of 100% of the profit D. Owner unlimited liability ANSWER: 6200/6600 Principles of Business and Finance Summer 2010 Page 87
- 12. Liability is for which anything a company owes. Specialized Partners 1. Dormant partner plays no role and is not known to the public. 2. General partner plays an active role and has unlimited liability (every partnership must have at least one general partner). 3. Limited participate as investors and have limited liability. 4. Secret partner plays an active role but is secret from society. 5. Silent partner does not have an active role but is known to the public. Franchise Formats 1. Business-format franchise requires franchisee to sell products or service in a specific format. Examples Jackson-Hewitt Tax Services Burger King Firestone Tires 2. Product-trade franchise allows franchisee to sell specific products. This format is usually formed by automobile, appliance, and petroleum product. Examples Marc Jacobson Toyota Bobby’s Appliance store Local stores selling Shell brand of gasoline Types Corporations 1. Domestic corporations are chartered in a specific state. 2. Foreign corporations are chartered in one state but doing business in another state. 3. Alien corporations are chartered in another nation but doing business in a state. 4. Public corporations are established for governmental purposes. 5. Private corporations are established by individuals for business or charitable purposes. 6200/6600 Principles of Business and Finance Summer 2010 Page 88