Chapter 8 Business Organizations Starting A Business Businesses begin with an idea. Entrepreneur – person who organizes, manages, and assumes the risks of a business in order to gain profits People start a business to: Gain profits Do something on their own Be their own boss

Starting A Business Must gather factors of production to start a new business. Need to be aware of laws, regulations and tax codes. SBDC – Small Business Development Center Startup – a beginning business enterprise Small Business Administration – can help with information and financing

Starting A Business State departments of commerce and community affairs can help a startup. Small Business Incubator – government-funded agency that assists new businesses by providing advice or low-rent buildings and supplies (Pottsville) May use the internet to gather information.

Starting A Business Elements of Business Operation Expenses equipment wages insurance taxes electricity telephone rent/mortgage water sewage advertising donations inventory accounting postage supplies banking internet security travel cont. ed. employee gifts dues zoning engineering inspections contractors building permits legal fees software memberships scholarships landscaping PACs neighbors entertainment product

Starting A Business Elements of Business Operation Inventory – extra supply of the items used in a business, such as raw materials or goods for sale Receipts – income received from the sale of goods and/or services; also slips of paper documenting a purchase Risk – can lose $ - 90% of small businesses fail Value of your time is opportunity cost

Sole Proprietorships Sole Proprietorship – business owned and operated by one person Proprietor – owner of a business Unlimited Liability – requirement that an owner is personally and fully responsible for all losses and debts of a business Assets – all items to which a business or household holds legal claim

Sole Proprietorships Advantages Disadvantages Receive all profits Few regulations and quicker decisions Lower taxes (usually) Own boss Obtaining credit easier Disadvantages Losses not shared with others Unlimited liability – can lose personal assets Must handle all decision making Time-consuming Must rely on own money Borrowing large sums may be difficult Death, injury, illness, or not working can mean business will fail

Partnerships Partnership – business that two or more individuals own and operate Limited Partnership – special form of partnership in which one or more partners have limited liability but no voice in management Joint Ventures – partnerships set up for a specific purpose just for a short period of time

Partnerships Advantages Disadvantages Losses are shared More efficient with fewer regulations Taxes lower Pride in owning own company Combine $ allowing for more funds & easier ability to loan Disadvantages Share profits Unlimited liability Disagreements and slower decision making Borrowing larger amounts limited Partner death or leaving means business must be reorganized or ended

Corporations Corporation – type of business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts and so on Stock – share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation 20% of businesses but 90% of revenue (pg. 221) 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

Corporations Corporate structure Registration Selling Stock Articles of Incorporation – document listing basic information about a corporation that is filed with the state where the corporation will be headquartered Corporate Charter – license to operate granted to a corporation by the state where it is established Selling Stock Common Stock – shares of company with voting rights Preferred Stock – shares of company with no voting rights but a guaranteed dividend Dividend – portion of a corporation’s profits paid to its stockholders Naming Board of Directors – supervises and controls the corporation by hiring officers for the company

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 Many hotels, motels, gas stations and fast-food chains are franchised Franchisee pays a fee and a portion of the profits to the franchiser Some examples – McDonald’s, Subway, Econo Lodge, Curves, Dunkin Donuts, KFC, & Pizza Hut