Chapter 8- Forms of Business Organization Flashcards
What is a business or an enterprise/firm? And what is it driven by?
An organization involved in the trade of goods, services, or both to consumers
Profit- the difference between the costs and the selling price
What are the five basic forms of business/ownership?
- Sole Proprietorship
- Partnership
- Corporation
- Limited Liability Company
- Franchise
What is a Sole Proprietorship?
It is the simplest form
Owned and run by one person
Entitled to all profits
Is responsible for all debts and losses
What is a Partnership? What are the two types?
The most common form
General Partnership: all parties have equal responsibility and all are liable for debts
Limited Partnership: one partner is a general partner and one or more partners are limited (not active in running day to day operations (simply invest)
What is a Corporation?
Incorporated
Are business owned by shareholders who elect a board of directors who oversee the daily operations of the business
Stock/Share=partial ownership
They can be government or privately owned
They can be for-profit or non-profit
What is a Limited Liability Company?
They are usually a combination of a corporation and a partnership
They give personal liability protection
No tax on the company/ only the individual
Mainly owned by one or two individuals
Most do not have stockholders
Usually small companies: “Unincorporated”
Exceptions: Amazon, Apple, Nike, etc
What is a Franchise?
A business investment that involves renting or leasing another corporation/ business
They act as an agent for a companies product
What is a Franchisor?
Creator and owner of the business
What is a Franchisee?
The person that invests in the business model
They must pay a franchise fee (rights) +5-10% of the profit
Pay for start-up costs
Sign a contract 3-5 years
Buy products from the franchisor
What are the Pros of a Franchise?
Piggyback on successful model
No business experience needed
Earn a decent income
What are the Cons of a Franchise?
Fee can be high
Time consuming (not 9 to 5)
You share your goals
