1. Chapter 9: Business Organizations
P.O.D. 1

2. Starting a Business List 5 New Businesses in the Bismarck/Mandan area
What do these businesses need to do to succeed?
List 5 Businesses that have failed (or closed down) in the Bismarck/Mandan area
What went wrong? Why did they close?
List 5 Businesses that have been in the area for a long time
Why have they been able to last so long?
Are there any business trends in the Bismarck/Mandan area?

3. Steps in Starting a Business
Entrepreneur: A person who starts a business to gain profits and is willing to take the risks involved
Many people decide to start a business so they can do something on their own

4. Steps in Starting a Business
Step 1: Gather the Factors of Production and Decide on the form of business organization that best suits your purposes
Step 2: Learn as much as possible about the business you plan to start
Learn about Laws, Regulations, and Tax Codes

5. Elements of Business Operation
Four Elements of Business Operation
Expenses
Advertising
Receipts and Record Keeping
Risk

6. Expenses
Anything you need to purchase to start your business is an Expense
For example starting a coffee shop:
Coffee maker, coffee flavors/powders, cups/lids/straws, etc.
At first you may buy products as needed
Eventually you will keep an inventory: a supply of whatever items are used in your business

7. Advertising
In order to have a successful business you need to tell people about your services
You will find that Advertising can be expensive
Print out Flyers
Put an add in the newspaper
Make a commercial
Once you have customers however, your business will spread by word of mouth

8. Receipts and Record Keeping
In order for your business to be successful you need to have a system to record everything
Especially your expenses and income
You should save your receipts and file them

9. Risk
By starting your own business you are also accepting the risk involved
You must balance the risks against the advantages
This includes balancing your profits vs. losses

10. Calculating your Profit
Profit = Receipts – Expenses
Total Revenue – Expenses = Profit
If you are not making more than you could elsewhere this business may not be worth it

11. Computers
Having a computer will increase your efficiency in almost everything!
Keep records
Store copies of receipts
Allow you to calculate your monthly expenses/profits

12. The Time Factor
A major opportunity cost in starting a business = time!!
You will have to create advertisements, keep records, etc.
Many business owners (especially when starting out) work more hours than when working a regular full-time job

13. Bill Gates
Read page 212

14. First Generation Computers

15. Early Desktop

16. Updated Desktop

17. Another Update

18. Computers Today

19. Sole Proprietorships and Partnerships
Section 2
Sole Proprietorships and Partnerships

20. Sole Proprietorship
This is the most basic type of business organization
Sole Proprietorship: a business owned by one person
Proprietor: The owner of a business
These businesses tend to be smaller
Making them easier to start and less expensive

21. Advantages of Sole Proprietorships
Owner receives all the profits
Decisions on starting/running the business can be made quickly
Must pay personal income taxes on profits—but may be lower than for a corporation
Proprietor has full pride in owning the business
May be easier to obtain credit since there is only one owner

22. Disadvantages of Sole Proprietorships
Losses are not shared
Proprietor has complete legal responsibility for all debts and damages
Must handle all areas of decision making (even areas you may not be familiar with)
Demanding and time-consuming (no one to share the responsibilities with)
Must rely on your own funds plus borrowing
As soon as the owner becomes unwilling/unable to work more than likely the business will shut down

23. Help in Starting Small Businesses
The federal government Small Business Administration often helps finance start-ups: new small businesses
State Departments of Commerce and Community Affairs offer assistance
Small Business Incubator: help “hatch” small businesses
May provide low-rent building, management advice, and computers
Goal: Generate job creation and economic growth

24. Partnerships
Partnership: Business that two or more individuals own and operate
A person may take on a “partner” when they want to expand but do not have the financial means to do so
You should sign an agreement that is legally binding
Duties of each partner, division of profits, & distribution of assets should the agreement end

25. Advantages of Partnerships
Loses are shared
Partnerships are usually more efficient than proprietorships
Partners must pay personal income taxes on their share of profits
Partners feel pride in owning/operating their own company
Partnerships combine the capital of two or more people

26. Disadvantages of Partnerships
Partners have to share the profits
Partners have unlimited liability for all debts and damages incurred
Decision making is often slow because several people have to agree
If partners do not get along there may be constant arguments
Partnerships can have trouble obtaining large amounts of capital
If one partner dies or leaves the partnership must be ended and reorganized

27. Limited Partnerships
Limited Partnership: Partnership in which the partners are not equal
One partner is the General Partner
This person(s) assumes all management duties and has full responsibilities for the debts of the limited partnership
The other partners only contribute money and/or property
Have no voice in the management

28. Limited Partnerships (cont)
The limited partners have no liability for the losses beyond what they initially invest
This information (at minimum) must be presented to the limited partners before they sign:
Company name, nature of business, place of business, name/residence of each partner, how long the partnership will last, amount contributed by each partner

29. Joint Ventures
Joint Venture: A temporary partnership set up for a specific purpose and for a short period of time
This benefits individuals or companies that want to do a special project together
Have no desire to work together after the project is done

30. The Corporate World and Franchises
Section 3
The Corporate World and Franchises

31. Corporations
Corporation: An organization owned by many people but treated by the law as though it were a person
Can own property, pay taxes, make contracts, sue and be sued, etc.
Separate and distinct existence from the stockholders who own the corporation’s stock
In terms of the amount of business done, corporations are the most important type of business organizations in the US today

32. Forming a Corporation
To form a corporation, founders must do three things
They must register their company with the government of the state where it will be headquartered
They must sell stock
They must elect a board of directors

33. Registering the Corporation
First you will file an articles of incorporation in the state you will be running your corporation
These articles include four items:
Name, address, and purpose of 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 these articles follow state law, you will be granted a corporate charter: a license to operate from that state

34. Selling Stock
Corporations can choose to sell common or preferred stock
Common Stock: gives holder part ownership in corporation and voting rights at the stockholders’ meeting
Does not guarantee a dividend (money return on the money invested in the stock)
Preferred Stock: Does guarantee a certain amount of dividend each year
Also guarantees first claim, after creditors have been paid, on whatever value is left in the corporation if it goes out of business
These holders usually do not have voting rights but ARE part owners

35. Selling Stock (cont.)
If the corporation continues to grow the stock may be sold over-the-counter in the local stock market
Individual brokerage firms hold shares of stocks that they buy and sell for investors
If it continues to grow it could be trades on a regional stock exchange
NASDAQ
The largest corporations are usually listed on the New York Stock Exchange

36. Raising Money
Selling stock is not the only way corporations can raise capital
It can sell debt by issuing bonds
Bonds promise to pay a stated rate of interest over a stated period of time
Also repays the full amount borrowed at the end of that time

37. Naming a Board of Directors
To become incorporated a company needs a board of directors
You and your partners, as founders of the corporation, would select the first board
After that stockholders elect the new board at their annual meetings
The board is responsible for supervising and controlling the corporation
Does not run day-to-day operations
They hire officers for the companies

38. Vice-President Marketing
Stockholders
Secretary
President
Vice-President
Operations
Manufacturing
Vice-President Marketing
Distribution
Legal Staff
Treasurer
Board of Directors

39. Advantages of Corporations
Owners of corporation (stockholders) do not have to invest time to make money
The corporation not stockholders is responsible for its debts
Responsibility is divided among many people
May feel satisfaction in being part owner
Corporations draw on resources of investors and may issue stock at any time to raise capital
Life of the corporation continues indefinitely
Is not affected by the death of stockholders

40. Disadvantages of Corporations
Decision making can be slow and complicated with all the levels of management
Federal government and some state/local governments tax corporate profits
Individual stockholders have little or no say in how a corporation is run

41. Franchises
Franchise: A contract in which a franchisor sells to another business the right to use its name and sell its products
The person who buys these rights (franchisee) pays a fee that may include a percentage of all money taken in
The chain helps the franchisee set up new businesses
Often they will have a training program to teach the franchisee about business and set standards of business operations