overview of business/ Structure of business Flashcards
What is Business and what are the three elements?
synonyms: firm, enterprise
1. Provides goods and services to customers
2. Generate profit for the owner
3. Legally recognized
What is a customer?
Consumers (General public)
Other businesses
Non-business organizations
Municipalities
How does a business generate revenue?
business accepts risk and generate goods and services for customers in order to generate revenue
What is revenue?
income generated by sale of profit
What is markup?
the amount added to the cost price of goods to cover overhead and profit
What are costs?
Expenses (money spent) in order to sell a product
Why is a formal structure of business important?
1) Protection - liability
2) Tax implications
3) Competitive identity
What are the three general types of business structure
- Sole Proprietorship
- Partnership
- Corporation
What is a sole proprietorship?
Single owner - not a corporation
Legally registered – may have a trade name
Operate alone or employ others
Owner has total and unlimited personal liability
No separation of person from business
Owner’s taxes and business taxes are same
What are the advantages of a sole proprietorship?
- Easy to set up and dissolve
- few legal formalities
- Simpler tax filings
- Least government regulation
What are the disadvantages to a sole proprietorship?
- Difficult to raise capital
- Owner take son all liabilities personally
What is a partnership?
Two or more people own and operate All partners share profits Each partner has total and unlimited personal liability Not a corporation May employ others
What are the types of partnerships?
General Partnership
Limited Partnership (LP)
Limited Liability Partnership (LLP)
What is a General Partnership?
Each participates in decision making
Each has personal liability for risk
Each is an agent – business accountable for their actions
Each gets a share of the profit
Created by a formal agreement among all partners
Typical of small retail businesses with two or three owners or family businesses
What is a Limited Partnership?
One or more partners whose ownership is defined in a way that limits their share in
- Decision making
- Profit
- Liability
Typically limited partners are not agents
Do not manage the business
Actions cannot commit the business
Terms of their limitation are defined and written
What is a Limited Liability Partnership?
Hybrid between a partnership and a corporation
All partners have limited liability
Must have at least one managing partner that bears liability of business actions
All manage the business directly
Generally not personally liable for obligations/debts of the LLP
Typically professional businesses – accounting, lawyers, doctors, etc.
What is a corporation?
- A for-profit, limited liability entity that has a separate legal personality from its owners/creators
- Requires registration, written rules and tax documents to be legally recognized in state in which incorporated
-Owners - shareholders
Shareholders elect board of directors
Directors hire business’s managerial head - CEO
What is a Limited Liability Company?
More flexible corporate structures have emerged
Limited liability and tax benefits of a corporation
Flexibility in how owner(s) handle taxes
These structural forms appealing to smaller businesses
Typically accountants help a business-owner decide if they should form a sole proprietorship or partnership or an s-corp
Single owners, small accounting, legal, consulting firms
What are professional service businesses?
Offer intangible goods or services
Generate profit by charging for labor or other services provided
Businesses like house decorators, consulting firms are examples
What is a Manufacterer?
Produce products from raw materials or component parts, then sell at a profit
Companies that make physical goods, like cars or plumbing supplies, nuts and bolts
Typically manufacturers don’t sell directly to the consumer, but can
What is a Retailer/ Distributor
Sell goods produced by manufacturers to customers, generating profit as a result of its sales or distribution services
Consumer-oriented stores and catalogue companies
When a distributor has other businesses as a customer and does not sell directly to the consumer, it is known as a wholesaler
Agriculture/Mining businesses
Production of raw material, such as plants or minerals
Turn natural supplies into consumable products and sell to distributors
or
Grow or process natural supplies and sell as materials to manufacturers
What are information businesses?
Generate profits primarily from resale of intellectual property
Include movie studios, publishers, telecommunications, cable and packaged software companies
What are financial service business?
Include banks, brokerage firms, asset managers
generate profit through investment and management of capital
What are utility businesses?
Produce public services, such as heat, electricity, or sewage treatment.
Usually government chartered and regulated but may be for profit as well
What are real estate businesses?
Generate profit from the selling, renting, and development of properties, homes, and buildings
Real estate brokers, landlords, building management companies are examples
What are transportation businesses?
Deliver goods and individuals from location to location, generating a profit on the transportation costs
Trucking, privately owned railroads, shipping and freight companies
What are health education and services businesses?
Derive profit from managing or providing health care or educational/training services
Includes hospitals, medical practices, clinics, private educational businesses
What are leisure and hospitality businesses?
Typically include hotels, lodges, motels, amusement parks, restaurants, and other such activities
