Creating a Business

Creating a Business

By: Evan Stern9th Grade

Introduction to Business

Learning ObjectivesYou will:• Describe the three types of business

organizations in a market economy

• Compare the advantages and disadvantages of each of the three types of business organization in a market economy

• Student will be able to understand how a business is created and which type of business organization is best for each potential business

Directions These are the directions on how to navigate

through my presentation You will navigate forward and backward through

each slide by clicking on the following arrows: (backward) (forward) You can click on the menu button and it will take

you back to the table of contents page, (menu logo)

Table of Contents• Sole Proprietorship• Partnership• Corporation• Quiz• Summary• Homework

Sole-Proprietorship• Sole proprietorship is defined as: a form of

business organization that is owned and managed by one individual who assumes all risk of loss and receives all profits

Advantages of Sole-Proprietorship:1. Low start-up costs2. Greatest freedom 3. All profits to owner 4. Owner in direct control

Disadvantages of Sole-Proprietorship:1. Unlimited liability2. Lack of continuity3. Difficulty in raising capital

Sole Proprietorship (Page 2)

Examples: Corner Grocery Store, Mom and Pop Shop

Oldest, most common, and simplest form of creating a business

Because they are an entity (distinct, separate existence), a person can never be separated from their business.

Not a good option if you have aspirations of starting a huge business (such as Wal-Mart or Target)

Partnership• A form of business organization that is

owned by two or more individuals who assume all risk of loss and receive all profit.

Advantages of a Partnership:1. Easy to form2. Low start up costs3. Divided authority

Disadvantages of a Partnership:1. Unlimited Liability2. Lack of continuity3. Divided authority4. Difficulty in finding suitable

partner

Partnership (Page 2) Examples: Lawyer Firm,

Doctors Office, Barbershop Named after the last name of

the partners (Brown & Croupen Law Firm is an example)

Its important to decide how assets are divided if you and your partner stop doing business. If this is not established, it could turn into a disaster.

Main point: Be in business with someone you trust!

Corporation• A form of business organization that is

created by law, functions as a separate legal entity, and is owned by two or more individuals called stockholders. Stockholders are at risk only for the amount of their financial investment.

Advantages of a Corporation:1. Limited liability2. Specialized

management3. Ease of raising capital

Disadvantages of a Corporation:1. Close regulation2. Most expensive to

organize3. Extensive record-keeping

Corporation (Page 2)o Examples: McDonalds,

IBM, Walmarto Rights of Stockholders in

Corporations: Declared dividends, voting at meetings on major issues, selling/buying shares, right to transfer ownership

o Stockholders are the last people to get a corporation’s assets.

Starting a Corporation Must choose directors for your corporation Write a corporation’s by laws Create and sign your articles of corporation Create a shareholders agreement Open a bank account Hold a board of directors meeting and assign a

secretary to take minutes at the meetings Obtain business licenses and permits Issue certificates to your corporation’s initial

stockholders

Quiz The following three slides are 3 quiz questions

that cover everything we just learned. If you read all of the content, you should do great

on the quiz! After the quiz, you will be assigned your

homework which I need by next class, when we will begin our project.

ENJOY!

Quiz Question 1What are the advantages of a partnership?A. Lack of continuity, Unlimited liability, Difficulty in finding suitable partnerB. Easy to form, Low start-up costs, Divided authorityC. Limited liability, Specialized management, Ease of raising capitalD. Owner in direct control, greatest freedom, all profits to owner

Quiz Q1 Incorrect INCORRECT!

These are the disadvantages of a partnership. Being liable for all parts of a business and having trouble finding a partner would not be considered advantages.

Quiz Q1 Correct CORRECT!

Partnerships are easy to form, have low-start up costs, and allow you to divide authority with your co-partner. These three advantages make a partnership a popular business organization.

Quiz Q1 Incorrect #2 INCORRECT!

These are the advantages of a corporation. A partnership has unlimited liability, not limited. A corporation also has stockholders and functions as a separate legal entity.

Quiz Q1 Incorrect #3 INCORRECT!

These are the advantages of a sole-proprietorship. A sole-proprietorship has low-start up costs like a partnership, but it is different because there is one owner. The owner is in direct control and receives all of the profits.

Quiz Question 2• Which of the following is not a right of

stockholders?A. Declared dividendsB. Voting on certain company mattersC. Being one of the first people to receive a portion of the company’s assetsD. Selling their shares

Quiz Q2 Incorrect #1• INCORRECT!

This is a right of stockholders. They are able to receive dividends if their company is making a profit.

Quiz Q2 Incorrect #2• INCORRECT!

This is a right of stockholders. They are able to attend all company meetings and vote on matters that affect the company. A corporation needs its stockholders to be happy and this is a way for them to contribute to the company,

Quiz Q2 Correct• CORRECT!

As a stockholder, you are not one of the first people to receive some of the company’s assets. You are actually at the very bottom of the corporate chain. The creditors get the company’s assets first, then the bondholders, then the preferred stockholders, and then finally the common stockholders.

Quiz Q2 Incorrect #3• INCORRECT!

Stockholders are allowed to sell their shares and buy more shares at any time. This usually happens when a company is doing poorly or when they are on the rise.

Quiz Question 3 Why would a person NOT want to start a sole-

proprietorship?A. Unlimited LiabilityB. No formal requirements C. Low start up-costsD. Decision making in direct hands of owner

Quiz Q3 Correct CORRECT!

A person would not want to start a sole-proprietorship due to unlimited liability. Unlimited liability means the owner’s personal assets can be taken away.

Quiz Q3 Incorrect #1 INCORRECT!

Having no formal requirements makes it easy to start a business. Business owners like the fact that it does not require a lot of time and effort to get started.

Quiz Q3 Incorrect #2 INCORRECT!

Potential business owners like the fact that start up costs are low. Some business owners create a sole-proprietorship organization on the side of another business, since costs are so low.

Quiz Q3 Incorrect #3 INCORRECT!

Certain business owners like not having a boss and they like being able to make all of the decisions on their own. Business owners who do not like receiving orders favor sole-proprietorships.

SummaryFor an additional summary of what we learned today, visit the following two websites. These web sites will help you understand what we learned and will further expand your learning .• http://

www.businessfinance.com/books/startabusiness/StartABusinessWorkbook010.htm

This web site talks about all three types of business organizations we discussed and the advantages and disadvantages of them. This is a good summary. http://www.poznaklaw.com/articles/solep.htmThis web site focuses on sole-proprietorship, but it goes into more detail than what we discussed. This is a good source for your project if you decide to create a sole-proprietorship as your business.

Homework Assignment Based on the skills already learned, we will start a

project. In this project, we will split up into groups and

you will have to pick out the best business for you based on clues.

The first step for your project is a group interview. Everyone must fill one out.

Click here to start your interview!

Teacher Information Business Education

Competencies: Introduction to Business: D) Investigate Business Operations

Compare and contrast the different types of business ownership (SS4, 1.10)

Teacher Information (Part 2)

My presentation is on how to create a business and the three different types of business ownership. This is exactly what SS4 says is a learning objective of Introduction Business.

My presentation is good for diverse learners because you can go through the presentation at your own pace and still be able to complete it effectively.

Now, we will begin working on a project. Each student will start a business and decide on their own what they want the business to be and what type of business organization they will start.

References Staff, Investopedia. (2010, Janurary 02). Knowing

your rights as a shareholder. Retrieved from http://www.investopedia.com/articles/01/050201.asp

Schultz, Matt. (n.d.). Sole proprietorship. Retrieved from http://www.sos.state.ia.us/business/sole.html