CH. 22, SECTION 1

Types of Business

4 Elements of Business

1. Expenses • What you need to start & continue a

business

2. Advertising• Introduction and reminder of your business

3. Receipts & Record Keeping • Needs to be accurate and dependable – for

profits & losses

4. Risk (profit vs. loss)• Risk is a consequence to the advantage of

being in business

Considerations When Starting a Business

Establishment of inventory

Use of computers/Technology Turbo Tax

Time – the opportunity cost. You could be working for someone else.

3 Types of Businesses

1. Sole Proprietorship• Owned by 1 person• Easy & relatively

inexpensive to start would be a need

• Small businesses typically

• Most common form of business

• Owner receives all profits

• Unlimited Liability

Sole Proprietorship

AdvantagesReceive all profitsQuick decisions

because no consultation

Relatively low taxes

DisadvantagesUnlimited liabilityHandle all decisionsTime consumingRely on own fundsBusiness depends on

one person

3 Types of Businesses cont.

2. Partnership• Owned by 2 or more individuals• Articles of Partnership – Partners sign an

agreement on what each is responsible for.• Limited Partnership

o Partners are not equalo General Partner – majority of controlo Limited Partner – own a small part – do not voice

opinions & are responsible only for what they put in

o LLPs (Limited Liability Partnerships) [mix of corporations and partnerships): Very popular with lawyers, accountants, and architects.

• Joint Ventureo temporary partnership to do a job

Partnership

AdvantagesLosses are sharedMore efficient than

proprietorshipsPay taxes on share of

profitEasier to borrow

money

DisadvantagesProfits are sharedUnlimited liability,

most of the timeMust reach

agreementsCommitted partners

3 Types of Businesses cont.

3. Corporation Owned by many Started by a founder Owned by Stockholders Run by a Board of Directors State government issues a charter to run the business Complicated structure Business has the same rights as an individual Are Double Taxed Founder’s responsibilities

Register with the state government for a charter Sell Stock Select the initial Board of Directors

Board of Director’s responsibility Elected by Stockholders Supervise & control the corporation Make all major decisions

Corporations

AdvantagesOwners do not have to

devote time to make money.

Stockholders have limited liability; they only lose what they put in.

Individuals trained in specific areas make decisions.

Disadvantages Decisions are slow.

Interest of the board may differ from the stockholders.

Double taxation. Govt. taxes corporate profit than individual shares.

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.

Other Types of Businesses

Franchise – sell the name & structure of a business Help train employees & set up the business Franchisee – pays a start up fee & annual fee

Non – Profit – business does not run to make money

Cooperative – individual businesses that work together to benefit all members Producer – Ex: Farmer’s Market Consumer – Ex: PCC Natural Markets, REI Service – Ex: Credit Unions, Utility

companies