1. Business Organizations
6-1
Business in America
6-2
Proprietorships in America
6-3
Partnerships in America
6-4
Corporations in America

2. Business in America 6-1 LO1-1
Identify the beginnings of business in America, from farming to the Gilded Age.
LO1-2
Discuss the evolution of business activity in the Twentieth Century.

3. Business in America 6-1 From Agriculture to Enterprise barter
industrialization
specialization
The Twentieth Century
mechanization
productivity
branding

4. Barter is the process of exchanging one product for another.
From Agriculture to Enterprise
Barter is the process of exchanging one product for another.
In order to meet needs of food, clothing, and shelter, trading and bartering was a common means of business activity from the early 1600s to the mid 1700s in America.
6-1 Business in America

5. From Agriculture to Enterprise
Industrialization is the process of making large quantities of goods and services in factories.
The industrial revolution in America began in the mid 1700s and flourished through the mid 1800s.
A growing population demanded more goods and services. Businesses popped up to meet those needs.
People with skills started companies to make and sell products. Many people started working in factories and earning a paycheck.
6-1 Business in America

6. From Agriculture to Enterprise
Specialization occurs where workers are doing just a few tasks and learning to do them well.
When people began working in factories, they were able to specialize in a small number of tasks, rather than making almost everything they consumed.
This process leads to efficiency and the ability to make more and better products at a lower cost.
6-1 Business in America

7. From Agriculture to Enterprise
barter
industrialization
specialization
Why did America move from bartering and trading into an economy based on specialization?
The country evolved from bartering to specialization as it grew and its needs changed. It soon became apparent that everyone would benefit from doing what they did best and buying the rest of their wants/needs from others.
6-1 Business in America

8. Productivity is the value of outputs compared to the cost of inputs.
The Twentieth Century
Mechanization is the process of using tools and machines to make more, better, and cheaper products.
Productivity is the value of outputs compared to the cost of inputs.
As outputs (what you can produce) go up, while the cost of labor and materials does not increase as fast, productivity grows.
6-1 Business in America

9. Branding gives recognition that leads to customer loyalty.
The Twentieth Century
Branding gives recognition that leads to customer loyalty.
Following World War II, businesses began to rethink how they would use their resources to make profits. Product branding and differentiation began.
Brand names gained recognition, from Coca-Cola to Chevrolet.
6-1 Business in America

10. The Twentieth Century
mechanization
productivity
branding
What is the relationship between entrepreneurship and the free market system?
Entrepreneurship—being able to own your own business and participate in the introduction of new products and services—brings new products and services to market at a rapid pace, based on demand from consumers.
6-1 Business in America

11. Proprietorships in America
6-2
Proprietorships in America
LO2-1
List and explain the advantages of the proprietorship form of business ownership.
LO2-2
List and explain the disadvantages of proprietorships.
LO2-3
Describe the advantages of a limited liability company.
LO2-4
Describe the disadvantages of a limited liability company.

12. Proprietorships in America
6-2
Proprietorships in America
Proprietorships: The Good News
sole proprietorship
business tax deduction
business license
Proprietorships: The Bad News
unlimited liability
collateral
The LLC: Good News
limited liability company (LLC)
The LLC: Bad News

13. Proprietorships: The Good News
In a sole proprietorship, the business is owned and managed by a single person.
That person is accountable to no one except him- or herself.
That means the owner makes all the decisions and controls what the company does or does not do.
6-2 Proprietorships in America

14. Proprietorships: The Good News
A write-off, or business tax deduction, allows business owners a favored tax status.
A business license is a document issued by a local government unit that allows business activities within a certain geographic area.
6-2 Proprietorships in America

15. What tax advantages are available to the owner of a proprietorship?
Proprietorships: The Good News
sole proprietorship
business tax deduction
business license
What tax advantages are available to the owner of a proprietorship?
Small business owners can deduct expenses such as costs of driving their car, utilities, and rent that are related to the business.
6-2 Proprietorships in America

16. Collateral is assets that have value and can be sold for cash.
Proprietorships: The Bad News
Unlimited liability is when all a proprietor’s assets (even car and home) are at risk.
The business owner has total liability for what the business does. The debts of the business are the debts of its owners. If the business fails, the owner is responsible. If the business gets sued, the owner will also have to pay.
Collateral is assets that have value and can be sold for cash.
6-2 Proprietorships in America

17. What is meant by “unlimited liability” of the owners or proprietors?
Proprietorships: The Bad News
unlimited liability
collateral
What is meant by “unlimited liability” of the owners or proprietors?
Unlimited liability refers to the owner’s total commitment of personal resources. Injured persons, creditors, and others can seek personal assets from a business owner to pay for damages they caused.
6-2 Proprietorships in America

18. The LLC: Good News
A limited liability company (LLC) is a form of business ownership that creates a sole proprietorship without unlimited liability.
This is a relatively new form of business ownership.
The LLC is not a corporation, nor is it a partnership.
It is formed by filing a document called “articles of organization” with the state. This procedure requires the owner(s) to write up an operating agreement and pay a filing fee.
6-2 Proprietorships in America

19. The LLC: Good News
limited liability company (LLC)
What is the main reason why entrepreneurs consider LLCs over sole proprietorships?
The main reason is because the LLC maintains the same type of business structure while limiting the owner’s personal liability.
6-2 Proprietorships in America

20. There are several limitations to the LLC from of ownership.
The LLC: Bad News
There are several limitations to the LLC from of ownership.
Understanding the LLC an the decision to be made up front will take time.
Setting up an LLC will likely require the services of an attorney or a tax accountant and require an investment of a several thousand dollars.
LLCs are created in individual states. They differ by states.
6-2 Proprietorships in America

21. What is the main reason why entrepreneurs get discouraged with LLCs?
The LLC: Bad News
What is the main reason why entrepreneurs get discouraged with LLCs?
Because LLC’s can be complex, they involve time getting to know and understand how to set them up properly.
6-2 Proprietorships in America

22. Partnerships in America
6-3
Partnerships in America
LO3-1
Discuss the characteristics of a general partnership, including advantages and disadvantages.
LO3-2
Discuss the characteristics of a limited partnership.
LO3-3
Describe the concept of a limited liability partnership.

23. Partnerships in America
6-3
Partnerships in America
General Partnerships
partnership
general partnership
partnership agreement
Limited Partnerships
limited partnership
limited liability
Limited Liability Partnerships (LLPs)
limited liability partnership
(LLP)

24. General Partnerships
When two or more people go into business together as co-owners, it is called a partnership.
This form of ownership is less common than proprietorships or corporations, but still there are nearly 2.5 million of them in America today.
There are three different types of partnerships: general, limited, and LLPs.
6-3 Partnerships in America

25. General Partnerships
A general partnership is a business with partners that manage the company and share in the profits (or losses) from the business.
A partnership agreement is an agreement that clearly states what each partner of a business has agreed to.
6-3 Partnerships in America

26. What do all partnerships have in common?
General Partnerships
partnership
general partnership
partnership agreement
What do all partnerships have in common?
Two or more people agree to work together under the terms of a partnership agreement
6-3 Partnerships in America

27. Limited Partnerships
A limited partnership is a business where there is at least one general partner and at least one limited partner.
A limited partner is one who contributes money and does not participate fully in the business.
The limited partner is entitled to a part of the profits (as stated in the agreement). But the limited partner does not have management or daily responsibilities.
6-3 Partnerships in America

28. Limited Partnerships
Limited liability means the limited partner will be held liable for debts or obligations of the company only to the extent of his or her financial investment in the company.
In other words, as long as they do not participate in general management, their personal assets will not be at risk.
6-3 Partnerships in America

29. How much personal liability does a limited partner have?
Limited Partnerships
limited partnership
limited liability
How much personal liability does a limited partner have?
Limited partners can lose only the dollar amount of their investment in the company.
6-3 Partnerships in America

30. Limited Liability Partnerships (LLPs)
The limited liability partnership (LLP) is an ownership plan that allows general partnerships to provide limited financial liability for general partners.
The main advantage of an LLP is that it protects all partners. Thus all partners can take an active role in managing the business, and all partners will have some form of limited liability.
6-3 Partnerships in America

31. What is the main advantage to a limited liability partnership?
Limited Liability Partnerships (LLPs)
limited liability partnership (LLP)
What is the main advantage to a limited liability partnership?
LLPS allow general partners the same limited liability protection as limited partners.
6-3 Partnerships in America

32. Corporations in America
6-4
Corporations in America
LO4-1
Describe the four types of corporations, three of which are profit-seeking.
LO4-2
Discuss how corporations are formed and how they operate.
LO4-3
List and define the advantages and disadvantages of the corporate form of organization.

33. Corporations in America
6-4
Corporations in America
Types of Corporations
C corporation
dividends
S corporation
Forming a Corporation
stockholders
common stock
preferred stock
The Good and the Bad

34. A C corporation is organized to sell stock to the general public.
Types of Corporations
A C corporation is organized to sell stock to the general public.
It is the most common type of corporation and what most people think of when they say “corporation.”
The stock of these companies is sold on the stock market and stock exchanges. Anyone can buy it, including individuals.
Because shares of stock are sold to the public, C corporations are subject to the rules and regulations of the Securities and Exchange Commission (SEC).
6-4 Corporations in America

35. Dividends are returns to owners of the profits earned by the company.
Types of Corporations
Dividends are returns to owners of the profits earned by the company.
Dividends are taxable income to those who receive them.
Businesses and individuals paying taxes on the same money is the concept of “double taxation.”
6-4 Corporations in America

36. Types of Corporations
An S corporation is a small business entity that is created under state laws.
Most proprietorships or partnerships become an S corporation in order to avoid unlimited liability.
An S corporation does not sell stock to the general public, and it is often referred to as a “family business corporation.”
State laws control what an S corporation can and cannot do, what paperwork must be filed, and how often the corporate officers must meet.
6-4 Corporations in America

37. What form of corporation is the most common type for large businesses?
Types of Corporations
C corporation
dividends
S corporation
What form of corporation is the most common type for large businesses?
Large businesses are C corporations so they can sell stocks and bonds to investors.
6-4 Corporations in America

38. Forming a Corporation
Stockholders are individuals who buy shares of stock to become part owners in a corporation.
Common stock is a class of stock in a corporation that carries the biggest risk.
Preferred stock is a class of stock in a corporation that typically has a guaranteed annual dividend.
6-4 Corporations in America

39. Who elects the board of directors of a corporation?
Forming a Corporation
stockholders
common stock
preferred stock
Who elects the board of directors of a corporation?
The common stockholders elect the board of directors of a corporation.
6-4 Corporations in America

40. The biggest advantage of corporate ownership is limited liability.
The Good and the Bad
The biggest advantage of corporate ownership is limited liability.
Corporations often get large and complex, and they are subject to government regulation.
Corporations are subject to double taxation.
6-4 Corporations in America

41. What is meant by double taxation?
The Good and the Bad
What is meant by double taxation?
The corporation pays taxes on earnings and then when earnings are distributed as dividends, stockholders pay tax again.
6-4 Corporations in America