CHAPTER 8 Business Organizations
Dec 25, 2015
Getting Started
Entrepreneurs: people who decide to start a business and are willing to take risks
Entrepreneurs should collect information about the business, the factors of production for the products, and learn about taxes and laws relating to the business.
Getting Started
Help from Government Federal and state governments offer help to small
businesses. The Federal government’s Small Business
Administration often helps finance startups, or new small businesses.
A small business incubator might also add businesses n your area. Small Business Incubator: private or government
funded agency that assists new businesses by providing advice or low-rent buildings and supplies
The Internet has a great deal of information to help entrepreneurs.
Elements of Business Operation
Expenses New equipment, wages, insurance, taxes,
electricity, telephone service, rent, supplies, inventory, etc.
At the beginning you may only buy parts as you need them but over time you will expand your business and have inventory available.
Inventory: extra supply of the items used in a business, such as raw materials or goods for sale
Elements of Business Operation
Expenses Wages are the expense paid in order to
compensate employees. Business owners should pay themselves what
they would make elsewhere because opportunity cost is important in determining what career one chooses.
Profit In order to track profit, a business should add
wages and other expenses including taxes. The expenses should be subtracted from the
business’s receipts, or income received from the sale of goods and services.
Elements of Business Operation
Advertising Advertising: information about a company and
the service / product it is selling Advertising can be purchased on radio,
television, print media, billboards, etc. Record Keeping
Businesses must track all expenses and income.
Internet programs and software will track revenues and expenses on the computer.
Business purchases can be deducted from the amount of taxes an owner owes.
Elements of Business Operation
Risk A business owner must balance the risk
against the advantages of being self-employed.
An owner might have to spend part of his/her savings in order to start a business or keep a business running.
An owner has to be able to afford expenses and advertising in order to be successful.
Sole Proprietorships
The most basic type of business in the sole proprietorship. Sole Proprietorship: business owned and
operated by one person
The biggest advantage is that the owner receives all the profits and has full control of the business.
Sole Proprietorships
The biggest disadvantage is that the owner has unlimited liability. Unlimited Liability: requirement that an owner
is personally and fully responsible for all losses and debts of a business
Personal assets may be seized to pay off business debts. Assets: all items to which a business or
household holds legal claim
Partenerships
Partnership: business that two or more individuals own and operate
Partners sign a legally binding agreement describing the duties of each partner, division of profits and distribution of assets at end of partnership.
Partnerships
The biggest advantage is that partners share control and profits.
The biggest disadvantage is the partners have unlimited liability.
Partnerships
Limited Partnerships Limited Partnership: special form of partnership in
which one or more partners have limited liability but no voice in management
One partner is called the general partner. The general partner assumes all of the management
duties and has full responsibility for debts of the partnership.
Other partners are limited. They only contribute money and property and have
no voice in the partnership’s management. Limited partners have no liability for the losses
beyond what they initially invest.
Partnerships
Joint Ventures Joint Venture: partnership set up for a specific
purpose for a short period of time.
The joint venture is dissolved after it has accomplished its goal.
Joint ventures are sometimes are sometimes sold later for profit.
Why Form a Corporation?
Corporation: type of business organization owned by many people but treated by law as through it were a person; it can own property, pay taxes, make contracts, and so on
The need for financial capital
Wanting financial backers who will lend funds without having a hand in the business.
What is a Corporation?
Corporations have a distinct existence from stockholders.
A major advantage is stockholders have limited liability, meaning they are not personally responsible, only the business loses money and assets.
A major disadvantage is corporations pay more taxes than other forms of business organizations.
What is a Corporation?
Stock: share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation
Limited Liability: requirement in which an owner’s responsibility for a company's debts is limited to the size of the owner’s investment in the firm
Corporate Structure
Registering the Corporation Register the corporation in the state where it
will be headquartered. File the articles of incorporation which
includes: Name, address, and purpose of corporation Names and addresses of the initial board of
directors (the new board will be elected at the first stockholder’s meeting)
Number of shares of stock to be issued Amount of money capital to be raised through
issuing stock.
Corporate Structure
Selling stock Raise capital by selling stocks or bonds. Common stock gives stockholders right to vote
and a percentage of future profits. Preferred stock doesn’t give voting rights, but
guarantees a dividend and these stockholders have first claim on assets left over if corporation goes out of business.
Naming a Board of Directors Stockholders elect a board of directors who will
supervise and control the corporation by hiring people to run the day-to-day operations of the business.
Franchises
Franchise: contract in which one business (the franchiser) sells to another business (the franchisee) the right to use the franchiser's name and sell its products
The franchisee pays a fee that could include a percentage of all money taken in.
Franchises often have training programs to teach the franchise and to set the standards of business operations.