CHAPTER 1
BUSINESS OWNERSHIP
OBJECTIVES:
1. The students
are able to explain the words concerning with business ownership.
2. The students
are able to explain the steps in decision-making process.
1.1 INTRODUCTION TO BUSINESS OWNERSHIP
All Business owners
must decide which form of legal organization - a sole proprietorship,
partnership, or corporation - best meets their needs. The decision is very
important because the choice affects many managerial and financial issues,
including income taxes, and the owner’s liability. In determining which legal
form their business should take, owners may consider the advantages and
disadvantages of each.
The sole
proprietorship is the ownership form chosen for the small-town restaurant, the
neighborhood grocery store, the local auto repair shop, and the bakery. Most
sole proprietorships are small businesses, often having only one employee.
However, there are some sole proprietorships that are large businesses, many of
today’s largest companies started out at sole proprietorships. Although the
owner may employ someone to manage the business, more commonly the owner is the
active manager of the firm. The capital necessary for operating the business is
normally provided by the sole proprietor from personal wealth, frequently aided
by borrowing. The owner usually makes all decisions personally rather than
delegating them to employees. If the business is the owner’s sole source of
income, the ability to operate it at profit is extremely important to him or
her.
Partnership is
larger than sole proprietorship. Yet, most partnerships are relatively small
businesses. There is no limit to the number of partners, and they may
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invest equal or unequal amounts of money. Net profits must be shared
among all
partners involved. It is best, although not necessary, that the
agreement between the partners be written and signed. Such a contract may
prevent misunderstanding and ill will at a future date. The agreement should
cover the following points: (1) who will receive what share of the profits? (2)
Who does what, and who reports to whom? (3) What happens if one of the partners
dies? (4) if desired, how could the partnership be dissolved? Of the three
common types of business ownership, partnerships are the least used.
Corporations employ
large numbers of people and are owned by large numbers of investors. Only large
businesses can mass-produce and mass-market the goods and services consumers
need and want. A corporation is a legal entity which is created by the law as
an artificial being that has the rights, duties, and powers of a person. A
corporation does not change its identity with changes in ownership. A
corporation is brought into existence through a charter, which is a document
issued by a state authorizing the formation of a corporation. Corporations can
raise money by selling shares in the business-called stock- to investors. These
investors are known as stockholders, or shareholders. Stockholders are the
owners of a business. Business profits are distributed among stockholders in
the form of dividends. Stockholders vote in accordance with the number of
shares they own. Annual meetings are called primarily to elect a board of
directors, who represent the stockholders. Once a board is elected, it assumes
final authority for all corporate actions.
QUESTIONS
1. What is sole
proprietorship?
2. What is the
advantage of sole proprietorship?
3. What is the
disadvantage of sole proprietorship?
4. What is
partnership?
5. What is the
advantage of partnership?
6. What is the
disadvantage of partnership?
7. What is
corporation?
8. What is the
advantage of corporation?
9. What is the
disadvantage of corporation?
10. What are the
similarities among them?
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11. What are the
differences among them?
12. Name some
businesses that you are familiar with. Do you know what forms of
ownership they represent? Explain!
Describe the products or services they offer!
13. Which of the
three forms of ownership do you come in contact with most
frequently? Why?
14. Where are the
various forms of business located in your community?
15. Which type of
business do you like shopping at the most? Why?
16. If you were to
open your own business, what form of ownership would you
choose? Why?
NEW VOCABULARY
In each set, cross
out the word that isn’t similar in meaning. Discuss the relationships among the
words in each set.
1. Inventory stock product staff
2. Reputation image illustration name
3. Bookkeeper auditor accountant
stockbroker
4. Debt mortgage dividend
liability
5. Profit expense
income revenue
6. Asset drawback benefit advantage
7. Flavor inedible taste seasoning
8. Renovate improve
destroy remodel
9. Proceed progress continue stop
10. Rave condemn
praise compliment
11. Store shop establishment infirmary
2. LANGUAGE SKILL
DECISION MAKING
Everyone needs to make decisions.
Business people must make wise decisions in order for their companies to
survive and grow. Decision-making is a crucial part of the management process.
It involves selecting the best course of action for a particular situation.
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The following are
the basic steps in decision-making process.
1. Identify the
problem. Gather as much information as possible, taking into account
all aspects of the problem.
2. Understand the
problem fully and determine why it exists.
3. Generate
possible solutions.
- Brainstorm. Write down as many ideas and possible solutions as you
can.
Remember, don’t stop to
analyze and no idea is too crazy.
- Choose your three best solutions.
- Write down the advantages and disadvantages of each solution.
4. Choose the
solution with the most advantages and the fewest disadvantages.
5. Formulate a
plan of action. How will you implement this solution? Be specific.
- Be patient, and give the implemented solution a chance to work.
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