1. Discuss the free enterprise system

2. Free Enterprise System
Referred to as private enterprise.
Encourages individuals to start and operate their own businesses without government involvement.
Allows the market to determine prices through supply and demand.

3. Basic Economic Freedoms
Freedom of ownership
Competition
Risk
Profit

4. Freedom of ownership
The ability to choose a house, car, job or business.
There are restrictions on how and where particular businesses can operate.
Ex. zoning

5. Competition
A rivalry between two or more businesses to gain as much of the total market share or as possible.
Helps maintain reasonable prices, provides consumers with new and improved products and results in a wider selection of products from which to chose.
Forces businesses to operate in the most efficient manner possible.

6. Risk
The potential for loss or failure.

7. Profit The essence of the free enterprise system.
The money earned from conducting business after all costs and expenses have been paid.

8. Advantages of Entrepreneurship
Personal independence to make key business decisions.
Personal fulfillment and feeling of self worth
Potential for increased income

9. Disadvantages of Entrepreneurship
Risk associated with potential loss of income
Hours can be long and often irregular

10. Sole Proprietorship A business owned and operated by one person
70% of all businesses in the US are sole proprietorships

11. Advantages of a Sole Proprietorship
Ease of startup
Limited government regulations including taxes
Profits go to the owner
Freedom in making business decisions

12. Disadvantages of a Sole Proprietorship
Unlimited liability
Responsible for all aspects of the business including skills and finances
Life of business is limited to the life or interest of the owner

13. Partnership A business owned and operated by two or more people.
Less than 10% of all businesses in the US are partnerships

14. Types of Partnerships
General partnership
Limited partnership

15. General Partnership
An agreement in which both partners agree to share equally in the profit and/or loss of the business
Each partner is liable for all debts incurred by the business

16. Limited Partnership
Each partner is liable for any debts of the business up to the amount of his/her investment
Must have at least one partner who has unlimited liability

17. Advantages of Partnerships
Relatively inexpensive to start
Combined financial resources and knowledge
Shared management responsibilities
Increased potential for profits
Shared responsibility for risk
Taxed less than a corporation
A change in ownership does not alter the continuity of the business.

18. Disadvantages of Partnerships
Partners can disagree about business decisions
The decision or action of one partner is legally binding on the other partner, including finances
If one partner dies, the business is dissolved

19. Corporation A business owned by stockholders
A legal entity that is chartered by the state in which the business is located
Boards, directors and officers manage the daily operations

20. Types of Corporations
Private (closed) -- Do not offer shares of stock for sale to the general public
Public (open) -- Offer shares of stock for sale to the general public
Subchapter “S” – Taxed like a sole proprietorship and limited to 35 or less shareholders

21. Advantages of Corporations
Delegation of specific management skills
Limited liability for stockholders
Life of the corporation is unlimited
Easier to secure capital
Stockholders can easily enter or leave the business by purchasing or selling stock

22. Disadvantages of Corporations
Numerous legal restrictions
Complex to start up and dissolve
Taxed heavily
Complex record keeping

23. Franchise
A business or organization with the right to use an established name and sell trademarked products
Granted to a retailer or a wholesaler for a fee

24. Advantages of Franchises
Reduced liability due to name recognition and common products
Franchisor usually provides training
Business plan is established by the franchisor, modified for the location and franchisee

25. Disadvantages of Franchises
Freedom to make business decisions is limited
Franchise fees may be expensive
Supplies and products must be purchased directly from the franchisor