Different Types of Businesses

Ch. 8

• Entrepreneurs• Profit seeker, risk

taker who develops a new product or process

• Assumes risk of loss or profit

• They create something of value.

Creative Changes in market economy

• 1. Introduce new products

• 2. Improve quality of Existing Products

• 3. Introduce new production methods

• 4. Introduce new ways of doing business

• Financing the Business• “You need money to

make money”• Financial capital—the

money needed to start or expand the business

Chapter 8 Sole Proprietorship and Partnerships

• Sole Proprietorship- a firms is owned and managed by a single individual.

• Earns all the firms’ profits & responsible for losses.

• Some have many employees, but many do not.

• A self-employed person is not considered to be a paid employee.

Who is Sole Proprietor?• Most community business

are owned by sole proprietors.

• Ex. Hair stylist, truckers, lawyers, doctors, & dentist.

• Consist of just one self-employed person

• Work at the business all the time through out the year, only part time, part of the year.

• 5% are US business sales

Advantages of Sole Proprietorships• Most common type of business• 1. Easy to Start-minimum red

tape & legal expense. Need a business license & permit to collect state & local sales taxes.

• 2. Few Government Regulations- maintaining accurate tax records and complying w/ employment laws. No employees.

• 3. Complete Control- boss, w/ complete authority over all business decisions, such as what to produce, what resources to hire, & how to combine these resource.

continued• 4. Owner Keeps All Profit-

does not have to share profits.

• 5. Lower taxes- Income is taxed only once as the owner’s personal income. (corporate income is taxed twice.)

• 6. Pride of Ownership-Creating a successful business & watching it grow can provide a sole proprietor tremendous satisfaction.

Disadvantages of Sole Proprietorship

• 1. Unlimited Personal Liability- a sole proprietor faces unlimited personal liability for any loss.

• Liability-is the legal obligation to pay any debts of the business.

• Owner is responsible to pay. (personal savings or sell personal assets, such as a home or automobile.

continued• 2. Difficulty Raising

Financial Capital-has no partners or other financial backers, raising enough money to get the business going.

• 3. Limited Life- business ends when the owner dies or leaves the business. Sold & becomes new ownership.

continued

• 4. Difficulty Finding and Keeping Good Workers- lack of permanence and difficulty raising financial capital, trouble offering workers job security.

• 5. Unlimited Responsibility- great deal responsibility.

Partnership

• Partnership-which involves two or more individuals who agree to contribute resources to the business in return for a share of the profit.

• One is talented and the other supplies the money.

Homework

• Read Chapter 8, sections 8.1—8.3, write down all of the key terms and define them as well as the key concepts at the end of each section (p.233—247.

• Do 1-5 don’t do the graphing.