1. Business and Market Structures What is an entrepreneur?
People who start businesses are called entrepreneurs.
They strike out on their own
They are risk takers
They give up a steady job working for someone else

2. Business and Market Structures Characteristics of an Entrepreneur
They usually need to save or borrow money to make capital investments in
Equipment
Rent production space
Hire workers
If business fails, risk losing their investment.

3. Why do Entrepreneurs take these risks?
To earn a profit
Profit motive – Driving force behind new products and services in a market economy

4. Business and Market Structures
Sole Proprietorships
A single owner, who takes all he risks and receives all the profits
Easy to start
About 70% of American businesses are this type
They earn only approximately 6% of all revenue

5. Business and Market Structures
Advantages of Sole Proprietorship
Owner has total control
Easy to Start-Up
Can make all decisions without having to consult anyone
Can be flexible
Able to make changes quickly
Easy to dissolve

6. Business and Market Structures
Two Major disadvantages:
Sole proprietors have limited capital for making repairs and improvements
Limited Access to Resources
Banks reluctant to lend money to them
Also, needs to invest their own profits into the business to keep it growing
Unlimited liability – The owner is personally responsible for all the debts of business

7. Business and Market Structures
Partnership
Divides the risks and profits of a business among two or more people.
Professionals such as doctors and lawyers often form partnerships
Advantage: partners can pool their resources and invest more capital
They can also offer more services by each specializing in a different area.
Easy to start
Disadvantage: Having to share the profits and having less control over decision making

8. Business and Market Structures
General Partnership
All partners are responsible for management and financial obligations of business
Limited Partnership
At least one partner is not active in daily running of business

9. Business and Market Structures
Partnerships
Silent partner – someone who invests in a business and shares its profits, but has no say in its day-to-day decisions and operation of business
Majority partner – Who owns more than half of the company
Minority partner – who owns less than half
Partnerships share one major disadvantage with sole proprietors – Each partner is personally responsible for all debts of business

10. Business and Market Structures
Corporations
For investors to avoid unlimited liability, a firm needs to be organized as a corporation
A corporation issues shares of stock to investors.
Some Shareholders are paid annual dividends
Shareholders elect a board of directors to run the business

11. Business and Market Structures
Corporations
The board of directors hires a chief executive officer (CEO) to make day-to-day decisions.
Advantages
limited liability –Shareholders are not responsible for a company’s debts.
If a corporation fails, all shareholders lose is the value of their stock

12. Business and Market Structures
Disadvantages:
Corporations are complicated and not as flexible as smaller businesses
Decision-making can be slow
CEOs may make wasteful decisions that profit themselves, rather than the shareholders
Double taxation of corporate profits

13. Business and Market Structures
A corporation may also borrow money by issuing bonds
Bond – a written promise to repay the amount borrowed at a later date.
Principal – The amount borrowed
Interest – The price paid for the use of another’s money OR the price a financial institution pays one to save money

14. Business and Market Structures
Income statement – a financial statement showing a business’s sales, expenses, and profits for a certain period to illustrate the financial “health” of a company
Net Income – Income minus expenses and taxes from revenue
Depreciation – A non-cash charge the firm takes for the general wear and tear on its capital goods

15. Business and Market Structures
Cash flows – The sum of net income and non-cash charges such as depreciation , Or, real profits .
The cash flows represent the total amount of new funds the business generates from operations

16. Business and Market Structures
Merger – When two or more companies come together to make one company
One company gives up its separate legal identity to become one large company
Reasons for mergers
To become a larger company
A company may not be able to grow as fast as owners would like
May want to lose corporate identity – ValuJet merged with AirWays to form AirTran Holding Corporation

17. Business and Marketing Structures
Types of Mergers
Horizontal merger – When two or more firms that produce the same kind of product join forces
The merger of two banks
Vertical merger – When firms involved in different steps of manufacturing or marketing join together
Auto company merging with a tire company

18. Business and Marketing Structures
Conglomerate – A firm that has at least four business, each making unrelated products.
None of the different divisions are responsible for a majority of its sales
Diversification – one of the main reasons for conglomerate mergers

19. Business and Marketing Structures
Multinationals – A corporation that has manufacturing or service operations in a number of different countries
A citizen of several countries (subject to laws in each country and pay taxes in each country)