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

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?

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

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

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

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

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

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

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

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

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

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

Bill Gates Read page 212

First Generation Computers

Early Desktop

Updated Desktop

Another Update

Computers Today

Sole Proprietorships and Partnerships Section 2 Sole Proprietorships and Partnerships

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

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

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

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

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

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

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

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

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

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

The Corporate World and Franchises Section 3 The Corporate World and Franchises

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

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

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

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

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

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

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

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

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

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

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