Types of Businesses Unit 7, Day 2

Opener: 9/10/15 1. ____ is the struggle between buyers and sellers to get the best products at the lowest prices. a.Competitionc.Productivity b.Free enterprised.Economic freedom 2. ____ is the act of buyers and sellers freely engaging in market transactions. a.Consumerismc.Consumer sovereignty b.Capitalismd.Voluntary exchange

Opener: 9/10/15 1. ____ is the struggle between buyers and sellers to get the best products at the lowest prices. a. Competitionc.Productivity b.Free enterprised.Economic freedom 2. ____ is the act of buyers and sellers freely engaging in market transactions. a.Consumerismc.Consumer sovereignty b.Capitalismd.Voluntary exchange

Proprietorships The most common form of business organization in the United States is the sole proprietorship, or proprietorship– a business owned and operated by one person. A proprietorship is the easiest form of business to set up. Anyone can start a proprietorship whenever they want to. Sole proprietors fully own the business and receive all the profits. They can make decisions quickly, without having to consult others.

Proprietorships (cont.) However, the owner has unlimited liability–the owner is financially responsible for all debts of the business. The owner’s personal assets may be seized to pay the debts. Sole proprietors have trouble raising financial capital–the money needed to help the business grow. Most use their own savings or borrow from friends and family.

Proprietorships (cont.) Sole proprietors may also have trouble attracting qualified employees because they may not be able to offer the same salaries and benefits that larger firms offer.

Partnerships A partnership is a business owned by two or more people. The articles of partnership is the legal agreement among partners that starts the business. It identifies how much money each will contribute, how they will share profits, and what role each will play. It describes how to add or remove partners and how to break up the business if they want to close it.

Partnerships (cont.) Partnerships can raise money more easily by borrowing or adding new partners. Like proprietors, partners pay no corporate income tax. Partners bring a range of talents to the business. Partners have unlimited liability. Each is fully responsible for all business debts.

Corporations A corporation is a business that has many of the rights and responsibilities of individuals. It can own property, sue, and be sued. It must pay taxes, but cannot vote. A corporation starts with a charter–a government document granting permission to organize. It describes the business and specifies the amount of stock, or ownership shares of the corporation, that will be issued. The stockholders who buy the shares own the business.

Corporations (cont.) Stockholders elect a board of directors, which hires managers to run the business. A corporation’s owners and managers are different groups of people. Corporations can raise money by selling new shares of stock. They can also borrow more easily than can proprietorships or partnerships. The ease of raising capital enables them to grow very large.

Corporations (cont.) Professional managers run corporations. If the managers do not succeed, the board can replace them. Ownership can be easily transferred by simply buying and selling stock. Corporations have limited liability. Only the corporation, not its owners, are responsible for the debts of the business. Individual stockholders can lose no more than the amount of their investment.

Corporations (cont.) Corporations are often expensive and complex to set up. Owners have little say in the management of the corporation. Corporations are subject to more government regulation than other forms of business. They must release detailed financial reports regularly to keep stockholders informed.

Corporations (cont.) Stockholders are subject to double taxation. First the corporation pays a tax on its profits. Then stockholders must pay income tax on the profits distributed to them. A nonprofit organization, such as a church or social service agency, operates in a businesslike way to promote the interests of its members.

Corporations (cont.) A cooperative is a voluntary association formed to carry out some kind of economic activity to benefit its members. A consumer cooperative buys goods in bulk for its members. A producer cooperative helps members promote or sell their products.

Exit Slip Using complete sentences, address the prompt below: A)What are the advantages of a partnership over a sole proprietorship? B)What are the advantages of a sole proprietorship over a partnership? C)Which type of business organization do you think is most important to the American economy? Explain.