Chapter 8 Chapter 8 Business Organizations Business Organizations

Starting A BusinessStarting A Business Businesses begin with an idea.Businesses begin with an idea. Entrepreneur – person who organizes, Entrepreneur – person who organizes,

manages, and assumes the risks of a manages, and assumes the risks of a business in order to gain profitsbusiness in order to gain profits

People start a business to:People start a business to: Gain profitsGain profits Do something on their ownDo something on their own Be their own bossBe their own boss

Starting A BusinessStarting A Business

Must gather factors of production to start a Must gather factors of production to start a new business.new business.

Need to be aware of laws, regulations and Need to be aware of laws, regulations and tax codes.tax codes.

SBDC – Small Business Development SBDC – Small Business Development Center Center

Startup – a beginning business enterpriseStartup – a beginning business enterprise Small Business Administration – can help Small Business Administration – can help

with information and financingwith information and financing

Starting A BusinessStarting A Business

State departments of commerce and State departments of commerce and community affairs can help a startup.community affairs can help a startup.

Small Business Incubator – government-Small Business Incubator – government-funded agency that assists new funded agency that assists new businesses by providing advice or low-rent businesses by providing advice or low-rent buildings and supplies (Pottsville)buildings and supplies (Pottsville)

May use the internet to gather information.May use the internet to gather information.

Starting A BusinessStarting A Business Elements of Business OperationElements of Business Operation

ExpensesExpensesequipmentequipment wages wages insuranceinsurancetaxestaxes electricity electricity telephone telephone rent/mortgage rent/mortgage water water sewage sewage advertising advertising donations donations inventory inventory accounting accounting postage postage supplies supplies banking banking internetinternet securitysecuritytraveltravel cont. ed.cont. ed. employee employee giftsgiftsduesdues zoningzoning engineeringengineeringinspectionsinspections contractorscontractors building permitsbuilding permitslegal feeslegal fees softwaresoftware membershipsmembershipsscholarshipsscholarships landscapinglandscaping PACsPACsneighborsneighbors entertainmententertainment productproduct

Starting A BusinessStarting A Business

Elements of Business OperationElements of Business Operation Inventory – extra supply of the items used in a Inventory – extra supply of the items used in a

business, such as raw materials or goods for business, such as raw materials or goods for salesale

Receipts – income received from the sale of Receipts – income received from the sale of goods and/or services; also slips of paper goods and/or services; also slips of paper documenting a purchasedocumenting a purchase

Risk – can lose $ - 90% of small businesses Risk – can lose $ - 90% of small businesses failfail

Value of your time is opportunity costValue of your time is opportunity cost

Sole ProprietorshipsSole Proprietorships

Sole Proprietorship – business owned and Sole Proprietorship – business owned and operated by one personoperated by one person

Proprietor – owner of a businessProprietor – owner of a business Unlimited Liability – requirement that an Unlimited Liability – requirement that an

owner is personally and fully responsible owner is personally and fully responsible for all losses and debts of a businessfor all losses and debts of a business

Assets – all items to which a business or Assets – all items to which a business or household holds legal claimhousehold holds legal claim

Sole ProprietorshipsSole Proprietorships AdvantagesAdvantages

Receive all profitsReceive all profits Few regulations and quicker decisionsFew regulations and quicker decisions Lower taxes (usually)Lower taxes (usually) Own bossOwn boss Obtaining credit easierObtaining credit easier

DisadvantagesDisadvantages Losses not shared with othersLosses not shared with others Unlimited liability – can lose personal assetsUnlimited liability – can lose personal assets Must handle all decision makingMust handle all decision making Time-consumingTime-consuming Must rely on own moneyMust rely on own money Borrowing large sums may be difficultBorrowing large sums may be difficult Death, injury, illness, or not working can mean business will failDeath, injury, illness, or not working can mean business will fail

PartnershipsPartnerships

Partnership – business that two or more Partnership – business that two or more individuals own and operateindividuals own and operate

Limited Partnership – special form of Limited Partnership – special form of partnership in which one or more partners partnership in which one or more partners have limited liability but no voice in have limited liability but no voice in managementmanagement

Joint Ventures – partnerships set up for a Joint Ventures – partnerships set up for a specific purpose just for a short period of specific purpose just for a short period of timetime

PartnershipsPartnerships AdvantagesAdvantages

Losses are sharedLosses are shared More efficient with fewer regulationsMore efficient with fewer regulations Taxes lowerTaxes lower Pride in owning own companyPride in owning own company Combine $ allowing for more funds & easier ability to loan Combine $ allowing for more funds & easier ability to loan

DisadvantagesDisadvantages Share profitsShare profits Unlimited liabilityUnlimited liability Disagreements and slower decision makingDisagreements and slower decision making Borrowing larger amounts limitedBorrowing larger amounts limited Partner death or leaving means business must be reorganized Partner death or leaving means business must be reorganized

or endedor ended

CorporationsCorporations Corporation – type of business organization Corporation – type of business organization

owned by many people but treated by law as owned by many people but treated by law as though it were a person; it can own property, pay though it were a person; it can own property, pay taxes, make contracts and so ontaxes, make contracts and so on

Stock – share of ownership in a corporation that Stock – share of ownership in a corporation that entitles the buyer to a certain part of the future entitles the buyer to a certain part of the future profits and assets of the corporationprofits and assets of the corporation

20% of businesses but 90% of revenue (pg. 221)20% of businesses but 90% of revenue (pg. 221) Limited liability – requirement in which an owner’s Limited liability – requirement in which an owner’s

responsibility for a company’s debts is limited to responsibility for a company’s debts is limited to the size of the owner’s investment in the firmthe size of the owner’s investment in the firm

CorporationsCorporations Corporate structureCorporate structure

RegistrationRegistration• Articles of Incorporation – document listing basic information about Articles of Incorporation – document listing basic information about

a corporation that is filed with the state where the corporation will be a corporation that is filed with the state where the corporation will be headquarteredheadquartered

• Corporate Charter – license to operate granted to a corporation by Corporate Charter – license to operate granted to a corporation by the state where it is establishedthe state where it is established

Selling StockSelling Stock• Common Stock – shares of company with voting rightsCommon Stock – shares of company with voting rights• Preferred Stock – shares of company with no voting rights but a Preferred Stock – shares of company with no voting rights but a

guaranteed dividendguaranteed dividend• Dividend – portion of a corporation’s profits paid to its stockholdersDividend – portion of a corporation’s profits paid to its stockholders

Naming Board of Directors – supervises and controls the Naming Board of Directors – supervises and controls the corporation by hiring officers for the companycorporation by hiring officers for the company

FranchisesFranchises Franchise – contract in which one business (the Franchise – contract in which one business (the

franchiser) sells to another business (the franchiser) sells to another business (the franchisee) the right to use the franchiser’s franchisee) the right to use the franchiser’s name and sell its productsname and sell its products

Many hotels, motels, gas stations and fast-food Many hotels, motels, gas stations and fast-food chains are franchisedchains are franchised

Franchisee pays a fee and a portion of the Franchisee pays a fee and a portion of the profits to the franchiserprofits to the franchiser

Some examples – McDonald’s, Some examples – McDonald’s, Subway, Econo Lodge, Curves, Subway, Econo Lodge, Curves, Dunkin Donuts, KFC, & Pizza Hut Dunkin Donuts, KFC, & Pizza Hut