Lecture 2

Business Ownership
&
Operations

1
Issues to Consider
 Three Forms of Business Ownership

 Sole Proprietorship
 Partnership
 Company
Sole Proprietorship
 Sole Proprietorship
• A business owned by a single owner is
referred to as a sole proprietorship.
• The owner of a sole proprietorship is called a
sole proprietor.
• A sole proprietor may bring in his own money
or can obtain loans from creditors to help
finance the business operations.
• The sole proprietor has unlimited liability.
 Advantages of Owning a Sole
Proprietorship
• Starting a sole proprietorship is easy to do.
• Sole proprietors are in control and can make all
the decisions and run the companies as they
see fit.
• They can also keep all the profits.
• Income from a sole proprietorship is taxed
once.
• A sole proprietor’s personal tax rate is often
lower than the corporate tax rate.
Disadvantages of Owning a Sole Proprietorship

• The owner has unlimited liability.

• Limited access to credit is another
disadvantage.
• Many proprietorships fail because they run out
of money.
• The person in charge may not have all of the
skills needed to run the business.
• The sole proprietorship ends when the owner
dies.
Partnerships
 Partnerships
• A partnership is a business owned by two or
more people who share its risks and rewards.
• To start a partnership, you need a partnership
agreement.
• This agreement is a contract that outlines the
rights and responsibilities of each partner.
 Advantages of Owning a Partnership

• As with a sole proprietorship, partnerships are easy to

start.
• Potential partners might need only to obtain a license or
permit.
• It is easier for partnerships to obtain capital.
• Banks are often more willing to lend money to partnerships
than to sole proprietorships.
• Partnerships are not dependent on a sole person.
• The income of a partnership is taxed only once.
• Lastly, each partner brings different skills and talents to the
business.
Disadvantages of Owning a Partnership

• Partners also share unlimited legal and

financial liability.
• All the partners share the business risks.
• If one partner makes a bad decision, all
partners are responsible.
• Problems occur when partners do not get
along or one of them decides to leave.
• Partnership ends with death of one partner.
Corporations
 Company / Corporations
• A company / corporation is a company that is registered
by a state and operates apart from its owners.
• A company or corporation is an artificial individual
created by law, whose existence is separate from the
owners (principals).
• A corporation must registered with the Securities and
Exchange Commission of Pakistan.
• To raise money, it can sell stock, or borrow through bonds.
• The company also must have a board of directors
(agents), who will manage the corporation.
 Advantages of Forming a Corporation

• A major advantage of a corporation is limited

liability.
• Limited liability holds a firm’s owners
responsible for no more than the capital that
they have invested in it.
• Another advantage is its ability to raise money
when people buy stock or bonds.
• It has perpetual existence and does not end if
an owner dies.
Disadvantages of Forming a Corporation

• They pay taxes on their income, and

stockholders pay taxes on profits issued to
them. That is called double taxation.
• The government regulates corporations more
than other types of businesses.
• Corporations are also difficult and costly to
start.
Other Ways to Organize a Business
 Cooperative
• One of the ways to organize a business venture is a
cooperative.
• A cooperative is an organization that is owned and
operated by its members.
• When groups of businesses, such as small farms, pool their
resources, they form a cooperative.
• The purpose is to save money on the purchase of certain
goods and services.
• A cooperative can make marketing of goods and services
more efficient and profitable.
• Yes, Cooperatives pay taxes.
 Non-profit Organization
• A nonprofit organization, or nonprofit, is a
type of organization that focuses on providing
a service, but not to make a profit.
• Nonprofits must also register with the
government.
• Hospitals, Schools etc.
• Because they do not make a profit, they do
not pay taxes.
 Franchise
• A franchise is a contractual agreement to use
the name and sell the products or services of a
company in a designated geographic area.
• To run a franchise, you have to invest money
and pay franchise fees or a share of the
profits.
• In return, the franchiser offers a well-known
name and a business plan.
Types of Businesses
 Types of Businesses

Businesses can be grouped by the kinds of

activities they perform.
 Producers
• A producer is a business that gathers raw
goods.
• Raw goods are materials gathered in their
original state from natural resources such as
land or water.
• Agriculture, mining, fishing, and forestry are
some of the industries that produce raw
goods.
 Processors

• A processor changes raw materials into more

finished products.
• Processed goods are made from raw goods
that require further processing.
• For example, sugar cane is turned into sugar,
crude oil into gasoline, and iron ore into steel.
 Manufacturers

• A manufacturer is a business that makes

finished products out of processed goods.
• Manufacturers turn raw or processed goods
into finished goods.
• Goods are material products such as cars, CDs,
and computers.
 Intermediaries and Wholesalers
• An intermediary is a business that moves goods from
one
• business to another.
• It buys goods, stores them, and then resells them.
• A wholesaler distributes goods. Wholesalers are also
known as distributors.
• A clothing wholesaler, for example, may buy
thousands of jackets from several manufacturers.
• The wholesaler then divides the large quantities into
smaller ones and sells them to retailers.
 Retailers and Service Businesses
• A retailer purchases goods from a wholesaler and sells
them to consumers, the final buyers of the goods.
• Service stations, general stores, and auto dealers are
examples of retailers.
• Service businesses perform tasks rather than provide
goods.
• Some service businesses meet needs, such as medical
clinics and law firms. Others provide conveniences, such as
taxi companies and copy shops.
• Service businesses employ about three-quarters of the
workforce and are rapidly increasing in numbers.
Functions of Business
 Functions of Business
• The main functions involved in the operation
of all types of businesses are
- Production and procurement
- Marketing
- Management
- Finance and Accounting.
 Production and Procurement
• Production is the process of creating,
expanding, manufacturing, or improving
goods and services.
• Most retailers procure goods from producers
for resale.
• Procurement is the buying and reselling of
goods that have already been produced.
• Wholesalers buy goods from producers to
resell to retailers and other wholesalers.
 Marketing
• Marketing is the process of planning, pricing,
promoting, selling, and distributing ideas,
goods, and services.
• Marketing involves getting consumers to buy a
product or service.
• Marketers make decisions based on market
research of trends and consumer habits based
on needs and wants.
 Management
• Management is the process of achieving
company goals by
- planning,
- organizing,
- leading,
- controlling, and
- evaluating
the effective and efficient use of resources.
 Finance and Accounting
• Finance is the business or art of money
management.
• It makes financial decisions regarding
financing, investing and operations.
• Accounting involves recording of financial
decisions.
• Accounting records, interprets and reports
financial decisions or transactions.
 Functions of Business Are
Interdependent
• The functional areas of business depend on each other.
• For example, say a furniture maker’s sales have been
decreasing.
• The accounting and finance departments have noted the
drop in sales.
• If the products are too high-priced, then more efficient
procedures will have to be implemented.
• This will involve management and production.
• A new marketing plan may be required.
• Accounting and finance will have to closely monitor the
effects that new efforts have on profits.
 Functions of Business Are
Interdependent

• Conflict is natural.
• Sometimes the functional areas conflict with
each other.
• The final plan involves ideas from all functions
of business.
• Companies benefit when all functional areas
work together and create synergy.
Thank You 

Questions