Back to Table of Contents

Components of the New Economy Chapter 7 Business Structures and Economics in E-Commerce Section 7-1 Business Structures Section 7-2 Components of the New Economy 2

Section 7-1 Why It’s Important Different types of businesses require different types of structures, each with its own operational framework and tax laws. Examining the differences between these structures will help you understand how business is conducted online. Section 7-1 3

Section 7-1 Key Terms sole proprietorship basic partnership limited partnership corporation stockholder shares initial public offering board of directors Section 7-1 4

Types of Business Ownership E-commerce businesses are structured much the same as bricks-and-mortar businesses.   A business can be owned by one person, by several persons, or by a group of stockholders. Section 7-1 5

Sole Proprietorship If you plan to run a small business that depends solely on your work and creative energy, and if you don’t need more start-up money than you already have, you may want to start a business as a sole proprietorship. sole proprietorship a business owned and operated by one person Section 7-1 6

Sole Proprietorship As a sole proprietor, you’re also liable for your company’s debts. If your business sells a harmful product or service, you can be sued directly.   For this reason, it’s important that the sole proprietor buy business insurance as a protection against wrongful lawsuits. Section 7-1 7

Partnership Before starting a basic partnership, make sure you work well with your partners. basic partnership a business that is formed and equally shared by two or more individuals Section 7-1 8

Partnership In a limited partnership, general partners assume management responsibilities. limited partnership a business structure in which partners do not have equal rights; a limited partnership consists of at least two people: at least one general partner and at least one limited partner Limited partners are not involved in management. They put up financing and share in company profits and losses. Section 7-1 9

Corporation A general corporation pays its own taxes, enters into contracts, can buy or sell property, and takes on all legal and debt burdens. corporation a business that is considered an entity separate from its owners; also known as a C corporation Section 7-1 10

Corporation If you own part of a corporation, you’re a stockholder who owns shares of stock. stockholder a person who owns part of a corporation shares the units of ownership held by each stockholder Section 7-1 11

Two Types of Corporations Public offers stock for sale to the general public Private sells stock to select investors Section 7-1 12

Corporation To become a public corporation, a company needs to work with an investment bank to arrange an initial public offering (IPO). initial public offering (IPO) first sale of a company’s shares to the public Section 7-1 13

Corporation The management of a corporation answers to a board of directors. board of directors a group of people elected by stockholders to keep an eye on the management team Section 7-1 14

Corporation A Subchapter S corporation is a business with 75 or fewer stockholders that is set up like a corporation but is taxed like a partnership.   The main disadvantage of a Subchapter S corporation is that it is limited to 75 stockholders. Section 7-1 15

Corporation A limited liability company (LLC) is a business ownership model that combines the features of a sole proprietorship, a partnership, and a corporation.   Like a corporation, an LLC is considered a legal entity separate from its owners. Section 7-1 16

How America Incorporates Itself There’s no right answer to which form of ownership is best for your e-commerce business.   The decision depends on the type of company you want to form, how much money you have to invest, and how much risk you’re willing to take. Section 7-1 17

Section 7-1 Review 1. Why is business insurance important for sole proprietorships? How is wrongdoing on the part of business owners handled by insurance companies? How does a limited partnership differ from a basic business partnership? What is a public corporation? How does it compare to a private company with regard to stock? What is a Subchapter S corporation? What is its greatest disadvantage? 2. Section 6-1 Review Business insurance protects a business owner from wrongful lawsuits. If a court finds wrongdoing on the part of a business owner, the insurance won’t cover the liabilities. In a limited partnership, a general partner manages the business, and the limited partners provide the funding but have no say in how the business is run. In a basic partnership, all the partners have an equal say in how the business is run. A public corporation sells company stock to the public on open markets. A private company sells its stock to select investors and not to the general public. A Subchapter S corporation is set up like a corporation but is taxed like a partnership. The main disadvantage is that it is limited to 75 stockholders. 3. 4. Section 7-1 18

Section 7-2 Why It’s Important The Internet has created new ways to do business and has made it much easier to start your own business. E-commerce has altered established economic traditions, such as local businesses, tax laws, and consumer buying habits. To stay competitive in today’s economy, it is essential for most businesses, regardless of their structure, to have a presence online. Section 7-2 19

Section 7-2 Key Terms market economy supply and demand inflation economic indicators Section 7-2 20

How E-Commerce Influences Economics The economy goes hand in hand with technology.   When considering the Internet and how it affects the economy, it’s important to first understand the workings of a market economy. Section 7-2 21

The Market Economy In a market economy, prices are not set by the government, but by supply and demand. market economy where individual buyers and sellers interact with one another to exchange goods, services, and money; also called a capitalist economy supply and demand the relationship between the amount of a good or service that is available and how much people are willing to pay for it Section 7-2 22

The Market Economy On the Internet, a seller will set prices as high as buyers are willing to pay.   Because online customers can easily comparison shop, e-retailers tend to keep their prices competitive. Section 7-2 23

The Impact of E-Commerce on Local and State Economies The development of e-commerce has had an impact on local and state economies. It has resulted in: a loss of sales tax revenue. a loss of business for traditional bricks-and-mortar retail stores. Section 7-2 24

Economic Impact of E-Commerce Although e-commerce amounts to less than 3 percent of total retail sales, it keeps prices down and, in turn, lowers inflation. inflation measures the rise in the cost of consumer goods Section 7-2 25

Economic Impact of E-Commerce Online savings are the result of sellers spending less money on the costs of real estate, advertising, inventory storage, and transportation.   This accounts for close to 38 percent of the price of consumer goods. Section 7-2 26

Economic Indicators The Census Bureau of the Department of Commerce tracks economic indicators. economic indicators statistics reported on a quarterly basis by the Census Bureau of the Department of Commerce tracking key statistics used to analyze business conditions and make forecasts; for example, retail e-commerce sales, the unemployment rate, the inflation rate, consumer spending, and the balance of trade Section 7-2 27

Making the Best of Both Worlds As the Internet grows in popularity, all businesses, online and off, will have to find new ways to compete.   As the number of people using the Internet continues to rise, all businesses should have an online presence to stay competitive. Section 7-2 28

Section 7-2 Review 1. How are prices determined on the Internet? What do economists predict for the future of e-commerce? What does this say about how traditional companies do business? How does e-commerce affect inflation? What are economic indicators? How often are these figures released, and why are they important? 2. Section 7-2 Review A seller will set prices as high as a buyer is willing to pay. Because online customers can easily comparison shop, e-retailers tend to keep their prices competitive. Economists predict that the number of people using the Internet will continue to rise. This suggests that all businesses should have an online presence to stay competitive The lower prices available online help to keep prices down, which keeps inflation down. Economic indicators are key statistics such as retail e-commerce sales, the unemployment rate, the inflation rate, and the balance of trade. The data is released quarterly and indicates business trends. 3. 4. Section 7-2 29

Customizable Slide 30

End of Back to Table of Contents