5.2/33.1/33.2 Types of Businesses & Entrepreneurship

Business classifications A business may be classified by 1. its size & scope 2. by its purpose 3. or its place within the industry

Business classifications 1. SIZE Large vs Small 1. more than 1000 employees= Large 2. fewer than 100 employees = Small 2. SCOPE Domestic vs. Global 1. limits its scope to 1 country= Domestic 2. sells products in more than 1 country= Global

Business classifications 2. PURPOSE For-Profit businesses seek to make profit from its operations Examples: Ruby Tuesday, The Blue Door Boutique, Publix Nonprofit Organization functions like a business money it makes fund a cause (it goes back into the business). generate revenue through gifts/donations/grants/etc. some may sell goods or services usually do not have to pay taxes on their income. Examples: The Red Cross, DECA, Boy Scouts of America, Headstart

Business classifications 2. PURPOSE Public Sector Government financed agencies that operate like businesses but are not intended to earn a profit. Examples include public schools and libraries, military agencies (Army), and social agencies like Social Security and Medicare Private Sector Businesses not associated with government agencies

Business classifications 3. Their place within the industry Businesses are often classified according to the industry they represent, the products they sell, and the markets they target. Wholesalers vs. Retailers 1 st a product must be produced (manufactured) and then sold to wholesalers or retailers. Wholesalers obtain goods from manufacturers and resell them. Wholesalers are also called distributors. Retailers buy goods from wholesalers or directly from manufacturers and resell them to the consumer.

Entrepreneurship Entrepreneurs make major contributions to our economy. Entrepreneurs own and operate their own business Free enterprise system is built on entrepreneurship Advantages: personal freedom, personal satisfaction, increased income Disadvantages: high level of stress, the risk of failure, potential loss of income, long and irregular hours, the need to handle multiple tasks and strong self discipline

Business Ownership Opportunities 4 ways to enter a business: 1. Purchase an existing nonfranchise business 2. Take over a family business 3. Start a new business 4. Purchase a franchise business

Forms of Business Organization The choice of legal organization or structure of a new business is a critical decision. There are 4 possible forms of business organization: 1. Sole proprietorship 2. Partnership 3. Corporation 4. Limited liability company (LLC) The choice depends on the financial and tax situation of the owner, the type of business, the number of employees, and the level of risk.

Sole Proprietorship A business owned and operated by 1 person. Most common form of business ownership Approximately 70% of all businesses AdvantagesDisadvantages Easy to startOwner responsible for business debts Low taxesUnlimited liability Owner gets profits Owner has control Owner has freedom

Partnership Legal agreement between 2 or more people to be jointly responsible for the success or failure of a business. 10% of US businesses Examples: law offices, medical offices, real estate agencies 2 types of partnerships: general and limited GeneralLimited shares in the profits and lossesliable for any debts only up to the amount of his or her investment in the company unlimited liability for the company’s debts1 general partner who has unlimited liability profits are taxed as personal incomeLimited partners have no voice in the management of the partnership. The withdrawal of a limited partner does not dissolve the partnership

Partnership AdvantagesDisadvantages Combines skills of its ownersThe owners may not agree on business decisions Taxed solely on the profits of the businessThe business is dissolved if 1 partner dies Fewer regulationsAll partners must assume their share of business debt

Corporation A business that is owned by several people but is considered to be just one person or entity under the law. Several unique features: Separate legal entity: operates as its own self, liable for itself. Stockholders: ownership of a corporation is divided into shares of stock. If the corporation sells stocks, it is one way to raise money. The owners of a corporation are the stockholders. Board of directors: stockholders own the corporation, but often do not manage it. Stockholders elect a board of directors that is responsible for major decisions. Chief Executive Officer: CEO

Corporation Corporations offer owners limited liability. Limited liability means that the personal assets of the owners cannot be taken if the company does not meet its financial obligations or if it gets into legal trouble. A corporation is not affected by the death, of an officer of shareholder.

Corporation AdvantagesDisadvantages limited liabilityComplexity of formation It is easier to raise moneyIncreased gov’t regulation Owners can easily enter or exit the business simply by buying or selling stock Corporate profits are taxed. Shareholders are taxed on dividends they earn as well as on profit made from the sale of stock. Management is sharedIntricate accounting and record keeping

Limited Liability Company (LLC) New form of business organization A hybrid of a partnership and a corporation Its owners are shielded from personal liability and all profits and losses pass directly to the owners without taxation of the entity itself