chapter 8 businesses · describe the advantages and disadvantages of sole proprietorships. describe...
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© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.11
CHAPTER 8
Businesses
8.1 Entrepreneurs
8.2 Sole Proprietorships and Partnerships
8.3 Corporations and Other Organizations
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.12
CHAPTER 8
Businesses
Why do some people want to call themselves “boss”?
Why start a business if most new businesses don’t last
five years?
What does your summer lawn-mowing operation have in
common with General Motors?
What do Corp. or Inc. in a company’s name tell you about
how the owners treat debt?
How could it be possible that most U.S. businesses have
no paid employees?
Consider
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.13
LESSON 8.1
Entrepreneurs
Understand the role of the entrepreneur
in a market economy.
Differentiate entrepreneurs from people
who perform a limited entrepreneurial
role.
Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.14
LESSON 8.1
Entrepreneurs
financial capital
innovation
Key Terms
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.15
Role of Entrepreneurs
Profit-seeker
Risk-taker
Visionary
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.16
Entrepreneurs and
Creative Change
Introduce new products
Improve quality of existing products
Introduce new production methods
Introduce new ways of doing business
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.17
Financing the Business
Financial capital is the money needed
to start or expand the business.
Sources of financing
Banks
Venture capitalists
Savings
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.18
Profit Attracts Competitors
Other businesses will enter the market
and try to duplicate the success of the
original entrepreneur
The pursuit of profit can lead to a chain
of events that creates new and better
products, higher quality, and lower prices
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.19
Who Isn’t an Entrepreneur?
Invention, innovation, and entrepreneurs
Managers and entrepreneurs
Stockholders and entrepreneurs
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.210
LESSON 8.2
Sole Proprietorships
and Partnerships
Describe the advantages and
disadvantages of sole proprietorships.
Describe the advantages and
disadvantages of partnerships.
Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.211
LESSON 8.2
Sole Proprietorships
and Partnerships
sole proprietorship
liability
partnership
general partnership
limited partnership
Key Terms
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.212
Sole Proprietorship
Sole proprietorship—simplest form of
business organization; a firm that is
owned and managed by one person, but
sometimes hires workers.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.213
Who Is a Sole Proprietor?
About three quarters of all businesses in
the United States are owned by sole
proprietors.
Nearly all sole proprietorships are small.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.214
Distribution of Sole
Proprietorships Based on
Annual Sales
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Distribution of Sole
Proprietorships by Industry
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.216
Advantages of
Sole Proprietorships
Easy to start
Few government regulations
Complete control
Owner keeps all profit
Lower taxes
Pride of ownership
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.217
Disadvantages of
Sole Proprietorships
Unlimited personal liability
Difficulty raising financial capital
Limited life
Difficulty finding and keeping good
workers
Unlimited responsibility
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.218
Partnerships
A partnership involves two or more
individuals who agree to contribute
resources to the business in return for a
share of the profit.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.219
Types of Partnerships
General partnership—partners share
both in the responsibility for running the
business and in any liability from its
operation
Limited partnership—at least one
partner is required to be a general
partner
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.220
Advantages
of Partnerships
Easy to start
Few government regulations
Shared decision making and increased
specialization
Greater ability to raise financial capital
More able to attract and retain workers
Lower taxes
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.221
Disadvantages
of Partnerships
Unlimited personal liability
Limited life of the business
Partners may disagree
Profits must be shared
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.322
LESSON 8.3
Corporations and
Other Organizations
Describe how a corporation is established.
Understand why the corporate form is favored
by large businesses.
Recognize other types of organizations
businesspeople use to accomplish their goals.
Objectives
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.323
LESSON 8.3
Corporations and
Other Organizations
corporation
articles of incorporation
private corporation
publicly traded
corporation
S corporation
Key Terms
limited liability
company (LLC)
limited liability
partnership (LLP)
cooperative
not-for-profit
organizations
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.324
Incorporating
A corporation is a legal entity with an
existence that is distinct from the people
who organize it, own it, and run it.
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.325
Comparing
Corporations
with Sole
Proprietorships
and Partnerships
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Articles of Incorporation
Articles of incorporation are a written
application to a state seeking permission
to form a corporation
A charter offers the legal authorization to
organize a business as a corporation
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.327
Types of Corporations
Private corporation
Publicly traded corporation
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.328
Advantages
of Incorporation
Easier to raise financial capital
Limited liability
Unlimited life
Specialized management
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.329
Disadvantages
of Incorporation
Difficult and costly to start
More regulated
Owners have less control
Double taxation
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.330
Other Organizations
Hybrid businesses
Cooperatives
Not-for-profit organizations
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Hybrid Businesses
S corporation combines the limited liability
protection of the corporate form with the single
taxation feature of a partnership
Limited liability company (LLC) combines
the limited feature of the corporation with the
single-tax provisions of a partnership
Limited liability partnership (LLP) has the
advantages of an LLC and is more easily
converted from an existing partnership
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.332
Cooperatives
A cooperative is a group of people who
pool their resources to buy and sell more
efficiently than they could independently.
Consumer cooperative—a retail business
owned and operated by some or all of its
customers in order to reduce costs
Producer cooperative—producers join
forces to buy supplies and equipment and to
market their output
© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.333
Not-for-Profit Organizations
Not-for-profit organizations engage in
charitable, educational, humanitarian,
cultural, professional, and other activities,
often with a social purpose.
Revenues typically include some
combination of voluntary contributions
and service charges.