Chapter 8:

Business Organizations

Section 1: Starting a Business

• Profit Motive• Getting Started– Entrepreneur, some one willing to take a risk.– Gather relevant factors of production.– Research• Competition• Demography• What else?

Getting Started

• Help from the government– Startups- new small business– Small business incubator– Economic Enterprise zones– Department of Commerce

– Help from the internet

Elements of Business Operation

• Expenses– Start up– Inventory– Monthly

• Advertising• Record Keeping– Receipts

• Risk

Section 2: Sole Proprietorships and Partnerships

• Sole Proprietorship, most common type of business.

• Proprietor, owner.• Profits and losses are all yours.• Unlimited liability, assets may be seized• All management is on you.• Pay taxes as personal income, saves money.

Sole Proprietorship

• Personal satisfaction in a job well done.• Demands on time.• Easier to get credit.• Borrowing large amounts can be tough.• Life of the business is limited.

Partnership

• Two or more owners.• Limited Partnership, Partners are not equal.– General Partner- run day to day affairs– Limited Partner(s)

• Shared profits

Continued

• More efficient, two heads are better than one but can lead to disagreements.

• Tax advantage • Combines capital.• Business lasts longer, can buy one out.• Limited liability• Joint Venture- Temporary

Section 3: The Corporate World and Franchises

• Time to expand-corporation : is an organization owned by many people by treated by the law as though it were a person.

• Stocks: a share of ownership in a corporation, entitles buyer to part of future assets of the company.

• Limited liability: requirement in which an owners responsibility is for a companies debts is limited to the size of the owners investments in the firm.

Articles of incorporation

• Articles of incorporation:– Name, address, and purpose of corporation– Name, address of initial board members and

directors– Number and shares of stocks to be issued– Amount of money capital to be raised through

issuing stock.

• Corporate charter: a license to operate from that state.

• Common stock: Shares of ownership that give stock holders voting rights and a portion of future profits.(after holders of preferred stocks are paid)

• Dividend: portion of profit paid to stock holders.

• Preferred stocks: NO VOTING in company, but guaranteed a certain amount of dividend each year.

• By Laws: a set of rules describing how stock will be sold and dividends paid.

• Franchise: is a contract in which a firm sells to a group of people to use its name and sell its product.