Business Organizations

Starting a Business

 Entrepreneurs : people who decide to start a business and are willing to take risks  Entrepreneurs should collect information about the business, the factors of production for the products, and learn about taxes and laws relating to the business.

 Help from Government  Federal and state governments offer help to small businesses.  The Federal government’s Small Business Administration often helps finance startups, or new small businesses.  A small business incubator might also add businesses n your area.  Small Business Incubator : private or government funded agency that assists new businesses by providing advice or low-rent buildings and supplies  The Internet has a great deal of information to help entrepreneurs.

 Expenses  New equipment, wages, insurance, taxes, electricity, telephone service, rent, supplies, inventory, etc.  At the beginning you may only buy parts as you need them but over time you will expand your business and have inventory available.  Inventory : extra supply of the items used in a business, such as raw materials or goods for sale

 Expenses  Wages are the expense paid in order to compensate employees.  Business owners should pay themselves what they would make elsewhere because opportunity cost is important in determining what career one chooses.  Profit  In order to track profit, a business should add wages and other expenses including taxes.  The expenses should be subtracted from the business’s receipts, or income received from the sale of goods and services.

 Advertising  Advertising : information about a company and the service / product it is selling  Advertising can be purchased on radio, television, print media, billboards, etc.  Record Keeping  Businesses must track all expenses and income.  Internet programs and software will track revenues and expenses on the computer.  Business purchases can be deducted from the amount of taxes an owner owes.

 Risk  A business owner must balance the risk against the advantages of being self-employed.  An owner might have to spend part of his/her savings in order to start a business or keep a business running.  An owner has to be able to afford expenses and advertising in order to be successful.

Sole Proprietorships and Partnerships

 The most basic type of business in the sole proprietorship.  Sole Proprietorship : business owned and operated by one person  The biggest advantage is that the owner receives all the profits and has full control of the business.

 The biggest disadvantage is that the owner has unlimited liability.  Unlimited Liability : requirement that an owner is personally and fully responsible for all losses and debts of a business  Personal assets may be seized to pay off business debts.  Assets : all items to which a business or household holds legal claim

 Partnership : business that two or more individuals own and operate  Partners sign a legally binding agreement describing the duties of each partner, division of profits and distribution of assets at end of partnership.

 The biggest advantage is that partners share control and profits.  The biggest disadvantage is the partners have unlimited liability.

 Limited Partnerships  Limited Partnership : special form of partnership in which one or more partners have limited liability but no voice in management  One partner is called the general partner.  The general partner assumes all of the management duties and has full responsibility for debts of the partnership.  Other partners are limited.  They only contribute money and property and have no voice in the partnership’s management.  Limited partners have no liability for the losses beyond what they initially invest.

 Joint Ventures  Joint Venture : partnership set up for a specific purpose for a short period of time.  The joint venture is dissolved after it has accomplished its goal.  Joint ventures are sometimes are sometimes sold later for profit.

The Corporate World and Franchises

 Corporation : type of business organization owned by many people but treated by law as through it were a person; it can own property, pay taxes, make contracts, and so on  The need for financial capital  Wanting financial backers who will lend funds without having a hand in the business.

 Corporations have a distinct existence from stockholders.  A major advantage is stockholders have limited liability, meaning they are not personally responsible, only the business loses money and assets.  A major disadvantage is corporations pay more taxes than other forms of business organizations.

 Stock : share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation  Limited Liability : requirement in which an owner’s responsibility for a company's debts is limited to the size of the owner’s investment in the firm

 Registering the Corporation  Register the corporation in the state where it will be headquartered.  File the articles of incorporation which includes:  Name, address, and purpose of corporation  Names and addresses of the initial board of directors (the new board will be elected at the first stockholder’s meeting)  Number of shares of stock to be issued  Amount of money capital to be raised through issuing stock.

 Selling stock  Raise capital by selling stocks or bonds.  Common stock gives stockholders right to vote and a percentage of future profits.  Preferred stock doesn’t give voting rights, but guarantees a dividend and these stockholders have first claim on assets left over if corporation goes out of business.  Naming a Board of Directors  Stockholders elect a board of directors who will supervise and control the corporation by hiring people to run the day-to-day operations of the business.

 Franchise : contract in which one business (the franchiser) sells to another business (the franchisee) the right to use the franchiser's name and sell its products  The franchisee pays a fee that could include a percentage of all money taken in.  Franchises often have training programs to teach the franchise and to set the standards of business operations.