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Chapter Menu Chapter Introduction Section 1:Section 1:Starting a Business Section 2:Section 2:Sole Proprietorships and Partnerships Section 3:Section 3:The Corporate World and Franchises Visual Summary 2

Chapter Intro 1 The profit motive acts as an incentive for people to produce and sell goods and services. 3

Chapter Intro 2 Imagine that you want to start a business. You will need to decide what your business will do, how you would like it to be structured, and whether you would like to work alone or with a partner. In this chapter, read to learn about the different ways that businesses are organized and what it takes to start a business. 4

Chapter Preview-End

Section 1-Main Idea Section Preview In this section, you will learn about what a person needs to do to start his or her own business, as well as various forms of help available for business owners. 6

Section 1-Key Terms entrepreneur startup small-business incubator inventory receipts Content Vocabulary 7

Section 1-Key Terms relevant generate document Academic Vocabulary 8

A.A B.B C.C Section 1-Polling Question Do you have any interest in starting your own business? A.Definitely B.Some interest C.Not at all 9

Section 1 Getting Started Businesses are started by entrepreneurs who are willing to take risks. 10

Section 1 Getting Started (cont.) A person who starts his or her own business is called an entrepreneur.entrepreneur 11

Section 1 Getting Started (cont.) An entrepreneur must: –Gather the relevant factors of production to produce their good or service. –Decide on the form of business organization that best suits their purposes. –Learn about the laws, regulations, and tax codes that will apply to their business. –Investigate their competition. 12

Section 1 Getting Started (cont.) The federal government’s Small Business Administration, as well as other government agencies, often help finance startups. startups A small-business incubator and the Internet also provide a wide array of information on how to start a business.small-business incubator View: Sources of Help for Business StartupsSources of Help for Business Startups 13

A.A B.B C.C Section 1 The small business incubator’s goal is to generate _____. A.jobs B.economic growth C.profit 14

Section 1 Elements of Business Operation There are four basic elements of business operation: expenses, advertising, record keeping, and risk. 15

Section 1 Elements of Business Operation (cont.) Every business must consider four basic elements: –Expenses: Inventory and equipmentInventory Wages Taxes Insurance Utilities In order to find out if you will make a profit, all expenses must be subtracted from your receipts.receipts 16

Section 1 –Advertising: notifying potential customers you are open for business. –Record keeping: you will need a system to track your expenses and income. Elements of Business Operation (cont.) There are programs on the Internet or software that can help with this. Net worth—the difference between what you own and what you owe. You also need to file your receipts properly for tax purposes. 17

Section 1 –Risks: you must balance the risks against the advantages of being in business for yourself. Elements of Business Operation (cont.) 18

A.A B.B C.C D.D Section 1 Which one of these elements would make owning your own business the hardest for you? A.Expenses B.Advertising C.Record keeping D.Risk 19

Section 1-End

Section 2-Main Idea Section Preview In this section, you will learn about common ways to organize a business. 21

Section 2-Key Terms sole proprietorship proprietor unlimited liability assets partnership limited partnership limited liability companylimited liability company joint venture Content Vocabulary 22

Section 2-Objectives potential temporary Academic Vocabulary 23

A.A B.B C.C Section 2-Polling Question Can you explain the difference between a sole proprietorship and a partnership? A.Yes B.Somewhat C.Not at all 24

Section 2 Sole Proprietorship A sole proprietorship is a business owned and operated by one person. 25

Section 2 Sole Proprietorship (cont.) The most common form of business organization is the sole proprietorship.sole proprietorship The owner of a business is called the proprietor. proprietor 26

Section 2 Sole Proprietorship (cont.) Advantages: –Satisfaction from being the boss and making the decisions. –Receives all profits –Low taxes 27

Section 2 Sole Proprietorship (cont.) Disadvantages: –It can be demanding and time consuming. –You have unlimited liabilityunlimited liability –Personal assets may be seized to pay off debt.assets 28

Section 2 Partnerships A partnership is a business owned and operated by two or more individuals. 29

Section 2 Partnerships (cont.) Businesses are also operated by partnerships. In a partnership, the partners sign a legally binding document describing how they will operate the business.partnership 30

Section 2 Partnerships (cont.) Advantages: –Each partner can work in his or her area of expertise. –Partners may have additional funds to use in business. –Taxes tend to be low. –The borrowing potential is high. 31

Section 2 Partnerships (cont.) Disadvantages: –Decision making can be slower. –Disagreements can lead to problems. –You must share the profits. 32

Section 2 Partnerships (cont.) Some partnerships are specialized: –Limited partnershipLimited partnership –Limited liability companyLimited liability company –Joint ventureJoint venture 33

Section 2-End

Section 3-Main Idea Section Preview In this section, you will learn about the characteristics and structure of corporations and franchises. 35

Section 3-Key Terms corporation stock limited liability articles of incorporationarticles of incorporation corporate charter common stock dividend preferred stock bylaws franchise Content Vocabulary 36

Section 3-Objectives visible distinct annual Academic Vocabulary 37

A.A B.B C.C Section 3-Polling Question Do you understand what a corporation is? A.Yes B.Somewhat C.Not at all 38

Section 3 Corporations and Their Structure Stock represents ownership rights to a certain portion of a corporation’s profits and assets. 39

Section 3 Corporations and Their Structure (cont.) A corporation is a 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.corporation Stock represents ownership rights in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation.Stock 40

Section 3 Corporations and Their Structure (cont.) In terms of the amount of business done, the corporation is the most significant type of business organization in the United States. A major advantage to operating as a corporation is its limited liability.limited liability A disadvantage is that they are taxed more heavily than other forms of business organizations. View: Comparing Corporations, Partnerships, and ProprietorshipsComparing Corporations, Partnerships, and Proprietorships 41

Section 3 Corporations and Their Structure (cont.) In order to form a corporation, its founders must do three things: Register their company with the government of the state in which it will be headquartered. –You will have to file the articles of incorporation with the state where the corporation will be headquartered.articles of incorporation 42

Section 3 Corporations and Their Structure (cont.) These articles include: Name, address, and purpose of the corporation. Names and addresses of the initial board of directors. Number of shares of stock to be issued. Amount of money capital to be raised through issuing stock. –If approved, the state grants you a corporate charter or license to operate in that state. corporate charter 43

Section 3 Corporations and Their Structure (cont.) Sell stock. Common stock does not, however, guarantee a dividend. dividend –Common stock is issued to raise funds. Stockholders are granted voting rights.Common stock –Preferred stock can be issued to raise funds. Holders have no voting rights.Preferred stock Preferred stock guarantees a dividend each year and has first claim if corp goes out of business. 44

Section 3 Corporations and Their Structure (cont.) Along with the other shareholders, they must elect a board of directors. They hire officers to run the business on a day to day basis. –The partners select the first board of directors, and stockholders elect the next board. The bylaws of the corporation govern this election.bylaws –The board is responsible for supervising and controlling the corporation. 45

A.A B.B C.C Section 3 Which type of business do you feel is the best and why? A.Corporation B.Partnership C.Proprietorship 46

Section 3 Franchises A franchise is an arrangement in which a person or group obtains the right to use the name and sell the products of another business. 47

Section 3 Franchises (cont.) Many fast-food chains, gas stations and hotels operate as a franchise. The parent company (the franchisor) sells to another business (the franchisee) the right to use the franchisor’s name and sell its products.franchise –The franchisee pays a fee that may include a percentage of all revenues taken in. –In return, the franchisor will help the franchisee set up their business. 48

Section 3 Franchises (cont.) Advantages: –Name recognition –A proven way of doing business –Advertising dollars largely paid by franchisor –The success rate of franchises is much higher than that of independently owned businesses. 49

Section 3 Franchises (cont.) Disadvantages: –Loss of control in running the business the way you might like. –Sometimes legal trouble if one of the parties fails to hold up its side of the agreement. 50

A.A B.B C.C Section 3 Do you feel that owning a franchise is a smart way to “own” a business? A.Yes B.Somewhat C.Not at all 51

Section 3-End

VS 1 There are four main elements of business operation: expenses, advertising, record keeping, and risk. 53

VS 2 Sole proprietorships and partnerships are two common ways that businesses are organized. 54

VS 3 The majority of business revenues in the United States are brought in by corporations, which are owned by many people but treated by law as if they were individuals. 55

VS-End

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Concept Trans Menu Economic Concepts Transparencies Transparency 5Transparency 5 Economic Institutions & IncentivesEconomic Institutions & Incentives Select a transparency to view. 59

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Vocab1 entrepreneur: person who organizes, manages, and assumes the risks of a business in order to gain profits 64

Vocab2 startup: a beginning business enterprise 65

Vocab3 small-business incubator: private or government-funded agency that assists new businesses by providing advice or low-rent buildings and supplies 66

Vocab4 inventory: extra supply of the items used in a business, such as raw materials or goods for sale 67

Vocab5 receipts: income received from the sale of goods and/or services; also, slips of paper documenting a purchase 68

Vocab6 sole proprietorship: business owned and operated by one person 69

Vocab7 proprietor: owner of a business 70

Vocab8 unlimited liability: requirement that an owner is personally and fully responsible for all losses and debts of a business 71

Vocab9 assets: all items to which a business or household holds legal claim 72

Vocab10 partnership: business that two or more individuals own and operate 73

Vocab11 limited partnership: special form of partnership in which one or more partners have limited liability but no voice in management 74

Vocab12 limited liability company: type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership 75

Vocab13 joint venture: partnership set up for a specific purpose for a short period of time 76

Vocab14 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 77

Vocab15 stock: share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation 78

Vocab16 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 79

Vocab17 articles of incorporation: document listing basic information about a corporation that is filed with the state where the corporation will be headquartered 80

Vocab18 corporate charter: license to operate granted to a corporation by the state where it is established 81

Vocab19 common stock: shares of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid) 82

Vocab20 dividend: portion of a corporation’s profits paid to its stockholders 83

Vocab21 preferred stock: shares of ownership in a corporation that give stockholders a portion of future profits (before any profits go to holders of common stock), but no voting rights 84

Vocab22 bylaws: a set of rules describing how stock will be sold and dividends paid 85

Vocab23 franchise: contract in which one business (the franchisor) sells to another business (the franchisee) the right to use the franchisor’s name and sell its products 86

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