Chapter 7 The Business of Free Enterprise

Anticipatory Set  Have you ever heard the phrase you don’t have to reinvent the wheel? What does it mean to you?

Objective  Our objective today is Learn what an Entrepreneur is and what types of businesses exist.

Entrepreneur  Someone who not only starts their own business, but invents or introduces a new product or idea.  A) they are usually a risk taker  B) Examples  Henry Ford  Ray Krock  Bill gates

Who becomes an Entrepreneur?  A) Improve a product or process by finding new ways to sell or use a product (kitty litter) Ed Lowe  B) Unexpected opportunities (Post-it- Note)  C) Spotting New Markets (Kinko’s Fed Ex)  D) Start at an early age (babysitting)  E) Identifying population trends

Small Business  Most entrepreneurs start with a small business  A small business is a business earning 3.5 million or less and employing no more than 500 people.  But they do have some key advantages…

Advantages  1) ability to satisfy small markets  2) their ability to adapt to change  3) imagination and flexibility are welcomed  4) you are the boss  5) job security

Disadvantages  **Most fail within a few weeks of getting started  1) Poor Management  Most people are unprepared for the heavy workload 2) Inadequate finances  A) don’t have enough money when getting started  1. insufficient capital, 2) slow sales, 3) heavy debt

 Day two

Where To Start  Anticipatory set:  If you had to start a business tomorrow what would it be?

Where to Start  Objective: today we are going to talk about how small businesses get started and how they contrast with other types of businesses

Where to Start  You can go to Small Business Administration  They provide counseling, literature, advice  There are entrepreneurial programs offered by colleges  You can get on the job training (getting paid while you learn)Steamfitters Local Union 420 Website - Apprenticeship Steamfitters Local Union 420 Website - ApprenticeshipSteamfitters Local Union 420 Website - Apprenticeship  You can learn from successful family members

Forms of Business Organizations  1) Sole proprietors- When 1 Person owns & operates a business  A. most common type of business (73% of all businesses)  B. Oldest form of business  C. Most simple to form (fewest government restrictions)

Advantages of Sole Proprietors  1. You are your own boss  2. Keep all of the profits  3. Tax advantage over corporations  4. Make all the decisions  5. You can establish a personal relationship with your customers

Disadvantages  Unlimited Liability  Total business responsibilities  One source of capital  Limited life  Tough to achieve specialization

Partnerships  1. When 2 or more people own a business (roughly 7%)  2. Two types of partners  A. Active partner-contributes both time & money  B. Silent partner-contributes money only

Advantages  1. Two or more sources of capital & better fund raising ability  2. Share the business responsibilities  3. Easy to organize with a better chance to specialize

Disadvantages  1. Unlimited liability  2. Limited life  3. Dishonest partner  4. You are responsible for your partners mistakes  5. Must split the profits  6. Finances are still very limited

Student Input  Answer the questions on page 106 and 111 in your JA Economics textbook

Corporations  A corporation is an artificial being permitted by Government to carry out a business  A corporate charter-A written grant of authority from the Government giving you permission to exist.  state charter is easier to obtain  Federal charter is more difficult and can be an expensive process

Owners-Stockholders  Paid dividends-how the corporate profits are shared  Proxy-written permission transferring your voting rights  This is the most dominant type of business in modern U.S. capitalism  Makes up 20%of all businesses  Generates 90% of all business sales & revenue

Advantages  Most effective way to raise capital  Sell new stocks, bonds, lenders, dispose of holdings  *Usually easier to access bank credit

Advantages  *Limited Liability owners risk only what they paid for stock  Easier to expand in size and scope  Mass production & specialization  A life separate from its owners (legally immortal)

Disadvantages  Very, Very had to establish  Expensive and time consuming  Lots of “Red-Tape” all of the papers and documents that must be completed before legally beginning  Double Taxation  Corporate profits are taxed (usually 35%)  Stockholders are taxed on dividends

Separation of Ownership & Business  Corporate officers can avoid responsibility for questionable business decisions  Officers can vote themselves large pay raises & bonuses  Most shareholders do not exercise voting rights