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3

Section 1-3

• How many times have you seen a product for sale and said, “That was my idea”? Or seen an item and thought, “That’s a good idea. I wonder how they thought of that”?

Introduction

• Many new products and services arise from personal experience.

• In this section, you’ll learn how to take your ideas and start a business and the four elements of business operation that entrepreneurs need to consider.

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Section 1-4

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Getting Started

• People who decide to start a business and are willing to take risks are entrepreneurs.

• Collect information about the business, the factors of production for the product, and learn about taxes and laws relating to the business.

• Federal and state government offer help to small businesses.

• The Internet has a great deal of information to help entrepreneurs.

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Section 1-8

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Elements of Business Operation

• Expenses: wages, equipment, utility bills, rent, supplies, and inventory

• Advertising: information about your company and the service/product you are selling

• Record Keeping: track all your expenses and income

• Risk: balancing the risk against the advantages of being self-employed

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7

Section 2-3

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• Businesses can be organized in a number of ways.

• Some have one owner. While others have multiple owners or partners.

Introduction

• In this section, you’ll learn that the two most common ways of organizing business in the United States are sole proprietorships and partnerships.

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Section 2-4

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Sole Proprietorships

• A business owned by one person, known as the proprietor.

• 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, which means the owner is personally responsible for all debts and damages from doing business.

• Personal assets may be seized to pay off business debts.

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Section 2-7

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Partnerships

• A business owned and operated by two or more people.

• 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 the partners share control and profits.

• The biggest disadvantage is the partners have unlimited liability.

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Section 2-7

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Partnerships (cont.)

• Limited partnerships are businesses in which the partners are not equal.

• The general partner(s) is(are) fully responsible for debts of company.

• Other partners contribute money or property, but have no voice in the company’s management.

• The limited partners have no liability beyond their initial investment.

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Section 2-7

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Partnerships (cont.)

• Joint ventures are temporary partnerships set up for a specific purpose.

• The joint venture is dissolved after it has accomplished its goal.

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13

Section 3-4

Why Form a Corporation?

• The need for financial capital.

• Wanting financial backers who will lend funds without having a hand in the business.

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Section 3-4

What Is a Corporation

• An organization owned by many people but treated by law as if it were a person.

• Corporations can own property, pay taxes, make contracts, sue and be sued.

• Corporations have a distinct existence from stockholders.

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Section 3-4

What Is a Corporation (cont.)

• A major advantage is stockholders have limited liability, 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.

Figure 3.1a

What Is a Corporation (cont.)

Figure 8.5 Business Organizations

Although proprietorships make up about 73 percent of American businesses, they generate only about 5 percent of total business revenues.

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Section 3-8

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Corporate Structure

• Register the corporation in the state where it will be headquartered.

• File the articles of incorporation which include name, address and purpose of corporation; names, addresses of board of directors; number of shares of stock to be issued; amount of money capital to be raised through stock.

• State grants a corporate charter that allows the corporation to operate in that state.

• Raise capital by selling stocks or bonds.

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Section 3-8

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Corporate Structure (cont.)

• 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.

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Section 3-8

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Corporate Structure (cont.)

• Stockholders then 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.

Figure 8.7 Corporate Chain of Command

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Section 3-17

Franchises

• A contract in which a franchiser sells to another business the right to use its name and sell its product.

• The business buying it, the franchisee, pays a fee that could include a percentage of all money taken in.

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• Franchises often have training programs to teach the franchisee and to set the standards of business operations.

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