Businesses Chapter 8 8.1 Entrepreneurs 8.2 Sole Proprietorships and Partnerships 8.3 Corporations and Organizations
8.1 Entrepreneurs • Objectives: • 1. Understand the role of the entrepreneur in a market economy. • 2. Know the difference between entrepreneurs from people who perform a limited entrepreneurial role.
Entrepreneurs • Roles of Entrepreneurs 1. Introduce new products. • 2. Improve quality of existing products. • 3. Introduce new production methods. • 4. Introduce new ways of doing business.
Entreprenuers • Introduce new products: A Segway. This product was designed as an alternative to riding a bicycle. Is this a good idea? Is there a market for them? Who uses them? • Improve quality of existing products: Coke Zero. Coke made an improvement on its product. The improvement was less calories with the same taste. Not many people like the taste of diet soda.
Introduce new product methods: Assembly lines are a prime example of new product methods. Before assembly lines, car were made by hand and not many were made, with assembly lines, they could produce more cars per day. • Introduce new ways of doing business: Dell Computers. Dell was created so the consumer could buy directly from the company and won’t have to buy from a retailers. (Best Buy)
Financing the Business • Financial Capital- Money needed to start or expand a business. • Financial capital may be obtained through banks, loans or Venture Capitalists. VC’s invest in start up companies. • If your company makes money, then more people will want to invest in it. In return, you will get more money to make your business grow.
Invention, Innovations and Entreprenuers • Inventions- Anything created and an individual(s). • Innovations- The process of turning an invention into a marketable product. You want to make an existing product better.
8.2 Sole Proprietorships and Partnerships • Objectives for 8.2 • Describe the advantages and disadvantages of sole proprietorships. • Describe the advantages and disadvantages of partnerships.
Sole Proprietorship • Sole Proprietorship- Simplest form of business. A business that is owned and ran by one person. Small business are: • 1. Easy to start • 2. Few Government Regulations • 3. Complete Control • 4. Owner Keeps All Profits • 5. Lower Taxes • 6. Pride of Ownership
Disadvantages of Sole Proprietorships • Liability- The legal obligation to pay any debts of the business. • 1. Unlimited Personal Liability • 2. Difficulty Raising Financial Capital • 3. Limited Life • 4. Difficulty Finding and Keeping Good Workers • 5. Unlimited Responsibility
Partnerships • Partnerships- Two or more people agree to create and run a business. • Types of Partners: • General Partners- Partners share both in the responsibility of running of the business. • Limited Partner- At least one general partner runs the business and the limited provides capital (money) for the business.
Advantages • Advantages of Partnerships: • 1.Easy to start • 2. Few government regulations • 3. Shared decision making and increased specialization • 4. Greater ability to raise financial capital • 5. More able to attract and retain workers • 6. Lower taxes
Disadvantages of Partnerships • 1. Unlimited Personal Liability- ( In general, all partners are responsible for paying debts) • 2. Limited Life of the Business- (If a partner dies or leaves, the business may be done with) • 3. Partners may disagree- (Enough said!) • 4. Profits must be shared (Once again, enough said!)
8.3 Corporations and Other Organizations • Objectives • 1. Describe how a corporation is established • 2. Understand why the corporate form is favored by large businesses. • 3. Recognize other types of organizations businesspeople use to accomplish their goals.
Incorporating • Corporation- A legal entity with an existence that is distinct from the people who organize own and run it. • A corporation can be sued, make a profit and lose money as well as being guilty of crimes. Articles of Incorporation- A written application to the state seeking permission to form a corporation. A corporation can issues shares of stock and pay out dividends.
Types of Corporations • Private Corporation- Ownership limited to just a few people, sometimes only family members. Shares of stock are not publically traded. • (Only people who work for the company can buy stock) • Publically Traded Corporations- Owned by many shareholders, shares can be bought and sold on the stock market. (Dow Jones, Nasdaq, S&P 500)
Advantages and Disadvantages • Advantage of Incorporation: • 1. Easier to raise financial capital. (Stocks) • 2. Limited Liability. Owners (stock holders) are only responsible for the debt of the company for the stock that they own. • 3. Unlimited Life. The company can exist if stocks are not bought. • 4. Specialized Management. Owners usually know how to run the business.
Disadvantage of Incorporation • 1. Difficulty and Costly to Start. You have to get approval by the government to stat up the company. • 2. More Regulated by the government. If you have publically traded stock, you are regulated by the SEC (Security Exchange Commission) • 3. Owners have less Control- The stockholders control the company. • 4. Double Taxation. The corporation and the shareholder each get taxed on the money earned.
Organizations and Hybrid Business • S Corporations- Combines limited liability protection and single taxation. They can’t have more than 75 stockholders and no foreign stockholders. • LLC Limited Liability Corporation- Business with limited liability for some owners, single taxation of business income and no ownership restrictions..
Cooperatives • Cooperative- A group of people who pool together resources to buy and sell more efficiently than they could being independent. • Consumer Cooperatives- Retail business owned by some of its customers to reduce costs. College bookstore is an example. • Producer Cooperative- When business pool together money to buy things. A farm is a prime example. They buy and shares high priced machinery.
Not-for-Profit Organizations • Not-for-profit Organizations- Groups that do not pursue profit as a goal. They exist to help people accomplish their goals. A teacher union, American Heart Association, Red Cross are all examples of NFPO.