1. The Role of Business in the American Economy
Entrepreneurs and How Businesses are Owned

2. Business—any organization that combines labor, land, and capital in order to produce goods or services.

3. The Role of the Entrepreneur
Entrepreneur—a person who starts a business
Begins with an idea for a new product, a new way of doing something, or a better way of providing a service
Then—raise money for capital goods to start the business
Motivated by the hope of earning a profit

4. Payments for Resources
May provide some of the factors of production themselves
May obtain the factors of production from other sources
Economists consider Entrepreneurship to be a fourth factor of production because they provide ideas and take risks in return for payment in the form of profit.

5. How Businesses Are Owned
Sole Proprietorship
Partnership
Corporation

6. Sole Proprietorship
business owned and operated by an individual or a married couple
relatively the most numerous and profitable of all business organizations
smallest in size
They earn almost 1/5 of the net income earned by all businesses, even though they make only a fraction of total sales.

7. Forming a Sole Proprietorship
easiest to start b/c it involves almost no requirements except for occasional business licenses and fees. (Lemonade stand in the front yard.)
Normally ready for business immediately.
It can be run from anywhere.

8. Advantages Easy to start
Easy to manage.- Decisions may be made quickly w/out having to consult a co-owner, partner etc.
enjoys the profits if successful
do not have to pay separate business income taxes. b/c the business is not recognized as a separate legal entity. The owner still has to pay taxes on profits taken from the business but the business is exempt from tax on income.

9. Disadvantages
Unlimited liability-The owner is personally and fully responsible for all losses and debts of business.
Difficulty in raising financial capital.
Little free time
Limited life- the firm legally ceases to exist when the owner dies, quits, or sells the business.

10. Partnership-business jointly owned by two or more people
general partnership- one in which all partners are responsible for the management and financial side of the company
Limited partnership- (silent partner)at least one partner is not active in the daily running of the business, although they may have contributed funds to finance

11. Advantages
Easy to start- even fees that are needed are minimal if extended over numerous partners.
Partners can specialize bringing their qualities to the table.
Partnerships usually attract financial capital more easily.
Lack of special taxes
More time off

12. Disadvantages
Each partner is fully responsible for the acts of all other partners. If one partner causes the firm to suffer a huge loss then all other partners are responsible.
Share profits
Limited Life- when a partner dies or leaves, the partnership must be dissolved and reorganized.
Decisions/Management shared-Potential for conflict between partners.

13. Corporations
form of business recognized by law as a separate legal entity having all the rights of an individual.
Large publically held companies, but could include small and single owners.
This status gives the corp. the right to buy and sell property, enter into legal contracts, and to sue and be sued.

14. Advantages
Can raise large quantities of money to grow mainly through selling stock
Stockholders are not responsible for the corporation’s debts
If the corporation fails, a stockholder loses only the value of his or her stock
Directors of the corp can hire professional managers
Limited liability for the owners
Unlimited life
Ease of transferring ownership

15. Disadvantages
More difficult and more expensive to start than other businesses
More limited by government regulations
Shareholders and owners have little say in how the business is run
Double taxation—once as a corp. profit and again as personal income