Business Ownership Types Quiz

Economic Sciences Basics (ECSB) WS 24/25

• This course unit provides an introduction to business and economy.
• Learning Objectives:
  • Understand the concept of business
  • Understand the classification of products and markets
  • Explore the characteristics of various business forms
  • Understand basic economic principles

Definition of Business

• Business is the activity of buying and selling goods and services.
• A business is any activity that provides goods and services to others, often for profit, but also sometimes for other purposes

Goods

• Tangible items manufactured, produced, or acquired to meet consumer needs and wants
• Examples include: Doughnuts, flashlights, toothpaste, vehicles, shoes, and dolls.

Services

• Intangible activities like healthcare, education, media and entertainment, or information technology that individuals or businesses provide for compensation

Types of Businesses

• Businesses are classified by size, function, and legal form.

Size

• Small and Medium-sized Enterprises (SMEs):
  • A substantial portion of businesses fall into this category (19 out of 20 in the USA).
  • Independently owned and operated.
  • Are not dominant in their field.
  • Meet a specific size of sales or number of employees.
  • Key factors for deciding if a business is an SME are: staff headcount, or turnover/balance sheet total.
    • Company category (Medium-sized, Small, Micro) | Staff Headcount ( <250, <50, <10)| Turnover (€) (<€50m, <€10m, <€2m)
• Large Enterprises:
  • Operate on a massive scale.
  • Serve numerous clients with wide geographic reach.
  • Offer diverse products/services catering to various market segments.
  • Have complex organizational structures (multiple departments/specialized teams).
  • Possess substantial financial, human, and technological resources for innovation, research and expansion.
• Advantages:
  • SMEs: Easy to form, lower costs, effective owner-worker relations
  • Large Enterprises: Professional management, strong financial position, product/service diversification
• Disadvantages:
  • SMEs: Weaknesses in competing with larger companies, limited growth, relatively "inadequate" management
  • Large Enterprises: High bureaucracy, expensive operations, complex decision-making

Function

• Manufacturing Companies: Produce goods by converting raw materials into finished products
• Service Companies: Provide intangible products (e.g., banking, transportation)
• Marketing and Retail Companies: Intermediaries between manufacturers and consumers
• Hybrid Companies: May combine elements of product and service businesses

Legal Form

• Sole Proprietorship: A one-person owned business
  • Advantages: Simple procedures, minimal complexity, profit retention, tax benefits, leaving legacy
  • Disadvantages: Unlimited liability, limited resources, limited expertise
• Partnerships: Owned by two or more people
  • Advantages: Easy to form and dissolve, relatively inexpensive
  • Disadvantages: Unlimited Liability, limited resource, limited expertise (for limited partnership, these are limited to the investment)
• Corporations: A legal entity separate from its owners with limited liability and ability to raise capital
  • Advantages: Limited liability (shareholders not personally liable), separate entity, perpetuity of the entity, easier to raise capital, ease of selling shares
  • Disadvantages: Complexity, higher initial costs, higher operational costs

Liability Concept

• Legal responsibility for actions
• Unlimited Liability: Personal assets at risk for business debts
• Limited Liability: Personal assets protected; liabilities limited to investment

Ownership

• Sole Proprietorship: Owned by one person
• Partnerships: Owned by two or more people
• Corporations: Ownership represented by shares of stock; shareholders are not personally liable
• Types of Partnerships:
  • General partnership
  • Limited partnership

Management

• Shareholders elect the Board of Directors (BOD) to represent their interests.
• The BOD chooses the top management of the company to handle its daily operations.
• Both boards and top management collaborate.
• The BOD is responsible for recruiting the CEO & monitoring management activities. The board acts as a collective group