Business

-A person that starts a business is an entrepreneur.

-Four elements of business:

  1. Expenses: What you need to purchase to start and continue a business.
  2. Advertising: Introduce your business.
  3. Receipts and record keeping: Accurate and dependable.
  4. Risk: (profit vs. loss) Balance risk against advantage of being in business.

-Ideas to consider:

  1. Establish an inventory for any relating job.
  2. Use computers. Buy programs to keep track of expenses.
  3. Time: Consider opportunity cost. You could be working for someone else.

Business types

-Sole proprietorship: Owned by one person. Easy and relatively inexpensive to start.

AdvantagesDisadvantages

Receive all profits- Unlimited liability

Quick decisions because no consultation- Handle all decisions

Relatively low taxes- Time consuming

- Rely on own funds

- Business depends on

one person

-Partnership: Business owned by two or more individuals. Partners sign an agreement on what each is responsible for.

AdvantagesDisadvantages

Losses are sharedProfits are shared

More efficient than proprietorshipsUnlimited liability

Pay taxes on share of profitMust reach agreements

Easier to borrow moneyCommitted partners
  • Limited partnership: Partners are not equal.
  • General partner: Majority of control.
  • Limited partner: Own a small part of the business. They do not voice opinions. They are only responsible for what they put in.
  • Joint Ventures: Temporary partnership to do a job.

-Corporations: Owned by many. Treated as one person.

  • Started by a founder and owned by stockholders.
  • State government issues a corporate charter to run the business.

-Founders must:

  1. Register the company with the state government.
  2. Sell stock.
  3. Select the initial board of directors.

-Board of Directors:

  1. Stockholders elect the board annually.
  2. Supervise and control the corporation.

Advantages:

  1. Owners do not have to devote time to make money.
  2. Stockholders have limited liability; they only lose what they put in.
  3. Individuals trained in specific areas make decisions.

Disadvantages:

  1. Decisions are slow. Interest of the board may differ from the stockholders.
  2. Double taxation. Govt. taxes corporate profit than individual shares.
  3. Stockholders have little or no say in how business is run.

Stocks and bonds

-Stock: Individual ownership in a corporation. Shareholder receives voting rights and dividends.

-Bond: Promise by a corporation to pay a stated amount of interest over a period of time.

Franchises

-A business uses an already established name.

-Franchiser: Sells the name. Help train employees and set up the business.

-Franchisee: Person buying the name. Pay a start-up fee and an annual fee.