Understand the nature of business Understand the types of business ownership.
Why do we need to know about businesses?
Enron - sells Energy- natural gas, etc Which company would you want to work for?
If you chose Southwest… You would be happy. They have been voted one of the best places to work. Employees receive bonus checks when the company makes a profit. They have always made a profit except for one quarter after 9-11.
If you chose Enron… You would be unhappy. They cheated their investors. They went bankrupt. All of their employees lost their pensions/401ks because the company “stole” their money. All of the employees lost their jobs.
Why do we need to know about businesses? The Good and The Bad
Businesses are important because… Your are going to spend most of your life working at a business –You need to understand if they are keeping your 401k/pension safe –You need to know how what type of businesses to invest in for your 401k/pension
Businesses are important because… One of our economy’s most important issues is the balance between allowing businesses to grow and how much they should be taxed.
Businesses are important because…
Starting your own business can be…
Some of your friends and family want to start a business- what advice would you give them? 1. Tom, Sally, and Joan created a new video game that is selling over a thousand units per day! Angry Birds was created by a 15 year old student! 2. Bob wants to start a lawn service. content/uploads/2009/11/subway-eat-fresh.jpg 3. Cousin Walter wants to open a hotel and would like people to invest in it. 4. Aunt Vivian wants to own her own Subway shop. 5. Your neighbors want to start a farmer’s market so everyone can have fresh vegetables and earn a little cash.
Business Ownership Sole Proprietorship Partnership Corporation Franchise
Sole proprietorship A business owned and run by one person The business is typically managed by the owner. Formation varies by state.
Advantages Easy to start up Complete control of the business Owner receives all the profits Limited taxes (one time taxation)
Disadvantages Limited capital (money) Unlimited liability (responsible for ALL debt) The business is limited to the lifetime of the owner
Partnership A business owned and controlled by two or more people who have entered a written agreement The management of the company depends on the partnership agreement.
Advantages More capital and credit available than a sole proprietorship Combined resources (money, expertise) Shared management responsibilities Shared risk Work load easier to manage than a sole proprietorship
Disadvantages Profits are shared Responsible for each others decisions Potential for disagreement among partners Unlimited liability (depending on type)
Limited Liability Partnership Identifies some investors who cannot lose more than the amount of their investment Investors are not allowed to participate in the day-to-day business management
Corporations An organization owned by one or more shareholders and managed by a board of directors. Ownership –Determined by purchase of stock –A stockholder, or shareholder, owns a ‘piece’ of the company –One share of common stock equals one vote
Types of Corporations Domestic - chartered in a specific state Examples located in North Carolina: Bank of America Corporation Lowe’s Home Improvement Store Foreign - chartered in one state, but doing business in another state Alien - chartered in another nation, but doing business in a state
Advantages Easier to obtain capital Limited liability for shareholders Life of the corporation is unlimited
Disadvantages Double taxation (profits and earnings) Government regulations and legal restrictions Decision-making shared among managers, board of directors, and shareholders
Franchise Permission to operate a business to sell products and services in a set way Begins with a parent company who owns the product or service and grants the right to another business Franchiser: the company that owns the product Franchisee: the company purchasing the right to run the business
Types of Franchises Business-format –R–Requires franchisee to sell products or service in a specific format Product trade-name –A–Allows franchisee to sell specific products. This format is usually formed by automobile, appliance, and petroleum product
Cooperatives Owned by members, serves their needs, and is managed in their interest Purchase goods and services cheaper as a group than as individuals Greater bargaining power than as individuals
What advice would you give them? On your worksheet choose the right Business Ownership Type for each situation. Why did you decide on your decision? (Each should get a different type.) 1. Tom, Sally, and Joan created a new video game that is selling over a thousand units per day! Angry Birds was created by a 15 year old student! 2. Bob wants to start a lawn service. content/uploads/2009/11/subway-eat-fresh.jpg 3. Cousin Walter wants to open a hotel and would like people to invest in it. 4. Aunt Vivian wants to own her own Subway shop. 5. Your neighbors want to start a farmer’s market so everyone can have fresh vegetables and earn a little cash.
What Business Ownership Type did you choose and why? 1. Tom, Sally, and Joan created a new video game that is selling over a thousand units per day! Angry Birds was created by a 15 year old student!
What Business Ownership Type did you choose and why? 2. Bob wants to start a lawn service.
What Business Ownership Type did you choose and why? 3. Cousin Walter wants to open a hotel and would like people to invest in it.
content/uploads/2009/11/subway-eat-fresh.jpg 4. Aunt Vivian wants to own her own Subway shop. What Business Ownership Type did you choose and why?
5. Your neighbors want to start a farmer’s market so everyone can have fresh vegetables and earn a little cash. What Business Ownership Type did you choose and why?
Great job but… Tom, Sally and Joan want to take different roles in their partnership. Tom loves running the marketing part of the business and wants to manage day to day operations. Sally feels her strength is creating games and does not want to be “bugged” by fans. Joan is willing to give money so the company can expand and they can make more money but doesn’t want to be liable for too much.
Types of Partnerships Dormant partner plays no role and is not known to the public. General partner plays an active role and has unlimited liability (every partnership must have at least one general partner). Limited participate as investors and have limited liability. Secret partner plays an active role but is secret from society. Silent partner does not have an active role but is known to the public.
Types of Partnerships Type of Partner Participation in the Business Relationship to the Public Degree of Liability DormantNot activeUnknownUnlimited GeneralActiveKnownUnlimited LimitedNot activeKnownLimited SecretActiveUnknownUnlimited SilentNot activeKnownUnlimited 35
Tom loves running the marketing part of the business and wants to manage day to day operations. Sally feels her strength is creating games and does not want to be “bugged” by fans. Joan is willing to give money so the company can expand and they can make more money but doesn’t want to be liable for too much.
Cousin Walter calls you again… He likes the corporation idea but Cousin Walter is worried about losing his life savings. He wants to make sure he doesn’t risks his children’s college fund savings.
Specialized Corporations Subchapter S (S-corporation) –treats partners as individuals by taxing them once Limited Liability Company –Provides limited liability protection for owners Nonprofit corporation –A group of people who join to do some activity that benefits the public
Types of Corporations continued Public-established for a governmental purposes Examples National Science Foundation Export-Import Bank of the United States Private-established by individuals for business or charitable purposes. Examples Enterprise Rent-A-Car American Cancer Society 39
Which type of Corporation should Cousin Walter choose? Why?
Great Job! All of your friends and family are happy with their business ownership choices