The Business Of Free Enterprise

Enterprise Vs. Entrepreneur Enterprise Business organization Entrepreneur Introduce new and better goods and services or ways of doing things

Characteristics Of Entrepreneurs Creative individualistic official thinkers Start at an early age Develop and sell ordinary products Find new ways to sell Spot new markets and develop new products Work to perfect their own idea Work within an existing business

Strategies used by entrepreneurs Take advantage of unexpected opportunities Respond to changing market conditions Improve a product or process Provide alternative goods/services Identify population trends

Economic role of a small business Small business Independently owned and operated and is not dominate in its field of operation Industry Group of one or more firms that produce identical or similar products Small businesses are the largest percentage of our economy

Advantage of small business Can add or discontinue merchandise line quickly Change hours of operation Alter pricing Can profit in small markets Suited to time-stressed consumers Appeal to specific demographic groups

Disadvantage of small business Higher failure rate than large firms for three reasons: Poor management Inadequate financing Insufficient capital slow sales heavy debt Inability to hire highly qualified workers Problem with salary and benefits

Reasons for owning your own business Personal independence Profits are all yours BUT so are the debts Opportunity to work hours they choose

Forms of business organization Sole Proprietorship Advantages Easy to start, few regulations and forms Free to make all decisions All profits are yours No separate taxes Can reach quickly to problems Personal satisfaction Disadvantages Unlimited liability Limited funds Lack of opportunities for employees Competitors and ability of owner can change

Forms of business organization Partnership Advantages Easy to form no special tax Partners bring more money to business New and different ideas Disadvantage Unlimited liability If partner dies or leaves business Limited funds Conflicts arise if partner disagrees

Corporations Must obtain a state charter Represented by shares of stock Stockholders are the owners Privately held stocks are owned by a small group or family Can be sued, can sue, and enter into contractual agreements

Forms of business organization Corporation Advantage Shareholders are responsible only for a debt up to their investment Ease of transfer of stocks buy or sell) Stockholder dies corporation doesn’t dissolve Raise money by selling stocks or issuing bonds Disadvantages Complicated and costly Taxed twice: Tax on profits, stockholders pay taxes on dividends When selling stocks to the public, must disclose finances and operations

Special types of business organization

S. Corporations Don’t pay corporate income tax Stockholders pay tax on dividends May not have more than 35 stockholders and may not own 80% or more of another corporation

Limited Liability Companies (LLC) Must have two or more members who function as a partner or stockholder Hold property in name of LLC rather than members names Advantage Don’t risk personal assets Disadvantage state regulations and strict tax rules limited life

Non-Profit Corporations Cover operation expenses including wages and benefits Normally serves educational, social, charitable, religious purposes

Government-owned Corporations Undertaken when the market doesn’t adequately supply a needed good or service

Cooperatives Individuals or companies that perform functions for the members Housing are multiple dwelling units owned by the tenants Consumer are retail businesses owned by the people who share in the profits and purchase goods/services at lower costs Producer Companies that manufacture and market products on behalf of the members

Franchises Is a license that entitles its holder to operate his or her individually owned business as if it were part of large chain of stores

Franchises Advantage Company can expand with little cost to itself Have the incentive to increase efficiency, sales, profits Provide training programs, financial assistance, advertising

How large corporations are organized Charter Stockholders Board of directors Annual Corporation report