Starting a Business: Guide for Entrepreneurs

1. Chapter 8 Business Organizations

2. Chapter 8Section 1 Starting a Business

3. Getting Started • Entrepreneurs: people who decide to start a business and are willing to take risks • Entrepreneurs should collect information about the business, the factors of production for the products, and learn about taxes and laws relating to the business.

4. Getting Started • Help from Government • Federal and state governments offer help to small businesses. • The Federal government’s Small Business Administration often helps finance startups, or new small businesses. • A small business incubator might also add businesses n your area. • Small Business Incubator: private or government funded agency that assists new businesses by providing advice or low-rent buildings and supplies • The Internet has a great deal of information to help entrepreneurs.

5. Elements of Business Operation • Expenses • New equipment, wages, insurance, taxes, electricity, telephone service, rent, supplies, inventory, etc. • At the beginning you may only buy parts as you need them but over time you will expand your business and have inventory available. • Inventory: extra supply of the items used in a business, such as raw materials or goods for sale

6. Elements of Business Operation • Expenses • Wages are the expense paid in order to compensate employees. • Business owners should pay themselves what they would make elsewhere because opportunity cost is important in determining what career one chooses. • Profit • In order to track profit, a business should add wages and other expenses including taxes. • The expenses should be subtracted from the business’s receipts, or income received from the sale of goods and services.

7. Elements of Business Operation • Advertising • Advertising: information about a company and the service / product it is selling • Advertising can be purchased on radio, television, print media, billboards, etc. • Record Keeping • Businesses must track all expenses and income. • Internet programs and software will track revenues and expenses on the computer. • Business purchases can be deducted from the amount of taxes an owner owes.

8. Elements of Business Operation • Risk • A business owner must balance the risk against the advantages of being self-employed. • An owner might have to spend part of his/her savings in order to start a business or keep a business running. • An owner has to be able to afford expenses and advertising in order to be successful.

9. Chapter 8section 2 Sole Proprietorships and Partnerships

10. Sole Proprietorships • The most basic type of business in the sole proprietorship. • Sole Proprietorship: business owned and operated by one person • The biggest advantage is that the owner receives all the profits and has full control of the business.

11. Sole Proprietorships • The biggest disadvantage is that the owner has unlimited liability. • Unlimited Liability: requirement that an owner is personally and fully responsible for all losses and debts of a business • Personal assets may be seized to pay off business debts. • Assets: all items to which a business or household holds legal claim

12. Partenerships • Partnership: business that two or more individuals own and operate • Partners sign a legally binding agreement describing the duties of each partner, division of profits and distribution of assets at end of partnership.

13. Partnerships • The biggest advantage is that partners share control and profits. • The biggest disadvantage is the partners have unlimited liability.

14. Partnerships • Limited Partnerships • Limited Partnership: special form of partnership in which one or more partners have limited liability but no voice in management • One partner is called the general partner. • The general partner assumes all of the management duties and has full responsibility for debts of the partnership. • Other partners are limited. • They only contribute money and property and have no voice in the partnership’s management. • Limited partners have no liability for the losses beyond what they initially invest.

15. Partnerships • Joint Ventures • Joint Venture: partnership set up for a specific purpose for a short period of time. • The joint venture is dissolved after it has accomplished its goal. • Joint ventures are sometimes are sometimes sold later for profit.

16. Chapter 8Section 3 The Corporate World and Franchises

17. Why Form a Corporation? • Corporation: type of business organization owned by many people but treated by law as through it were a person; it can own property, pay taxes, make contracts, and so on • The need for financial capital • Wanting financial backers who will lend funds without having a hand in the business.

18. What is a Corporation? • Corporations have a distinct existence from stockholders. • A major advantage is stockholders have limited liability, meaning they are not personally responsible, only the business loses money and assets. • A major disadvantage is corporations pay more taxes than other forms of business organizations.

19. What is a Corporation? • Stock: share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation • Limited Liability: requirement in which an owner’s responsibility for a company's debts is limited to the size of the owner’s investment in the firm

20. Corporate Structure • Registering the Corporation • Register the corporation in the state where it will be headquartered. • File the articles of incorporation which includes: • Name, address, and purpose of corporation • Names and addresses of the initial board of directors (the new board will be elected at the first stockholder’s meeting) • Number of shares of stock to be issued • Amount of money capital to be raised through issuing stock.

21. Corporate Structure • Selling stock • Raise capital by selling stocks or bonds. • Common stock gives stockholders right to vote and a percentage of future profits. • Preferred stock doesn’t give voting rights, but guarantees a dividend and these stockholders have first claim on assets left over if corporation goes out of business. • Naming a Board of Directors • Stockholders elect a board of directors who will supervise and control the corporation by hiring people to run the day-to-day operations of the business.

22. Franchises • Franchise: contract in which one business (the franchiser) sells to another business (the franchisee) the right to use the franchiser's name and sell its products • The franchisee pays a fee that could include a percentage of all money taken in. • Franchises often have training programs to teach the franchise and to set the standards of business operations.