chapter 8 businesses · describe the advantages and disadvantages of sole proprietorships. describe...

© 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

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.215

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

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.326

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

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 8.331

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.