Download Chapter 8- Business Organization

Business Organizations
Starting a Business


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.

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.

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

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.

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.

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
and Partnerships

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.

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


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.


The biggest advantage is that partners share
control and profits.
The biggest disadvantage is the partners have
unlimited liability.

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.

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.
The Corporate World
and Franchises



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.



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.


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

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.

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.



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.