Transcript Business Types and Entrepreneurs

Business Types and Entrepreneurs
Objectives
 Discuss the risks and rewards of entrepreneurship
 Investigate the three major types of business organizations
 Differentiate corporations operating for profit and those that
are nonprofit
Risks and Rewards of
Entrepreneurship
 Risks
 Unemployment/Feeling of
Failure
 50% of small businesses go
out of business within first 5
years
Risks and Rewards of
Entrepreneurship
 Risks
 Damage to relationships
 Requires many hours of work
resulting in being away from
home a great deal
Risks and Rewards of
Entrepreneurship
 Risks
 Savings lost/debt
 May use much of your saving
to start business or borrow
money – if business fails you
are left with no savings and
debt to repay
Risks and Rewards of
Entrepreneurship
 Rewards
 Accomplishment
 Bring ideas to life
 Can see ideas that you have
be successful
 Be your own boss
 High earning potential
Question?
Each of the following is a risk of entrepreneurship EXCEPT:
A.
B.
C.
D.
Loss of savings
Being your own boss
Damage to relationships
Possibility of unemployment
Question?
Each of the following is a risk of entrepreneurship EXCEPT:
A.
B.
C.
D.
Loss of savings
Being your own boss
Damage to relationships
Possibility of unemployment
Questions?
Each of the following is a reward of entrepreneurship EXCEPT:
A.
B.
C.
D.
Shorter work day
Bringing ideas to life
Higher earnings potential
Feeling of accomplishment
Question?
Each of the following is a reward of entrepreneurship EXCEPT:
A.
B.
C.
D.
Shorter work day
Bringing ideas to life
Higher earnings potential
Feeling of accomplishment
Question?
Profit motive and a sense of __________ act as powerful
incentives for many entrepreneurs.
A.
B.
C.
D.
Power
Uncertainty
Independence
Impulsiveness
Question?
Profit motive and a sense of __________ act as powerful
incentives for many entrepreneurs.
A.
B.
C.
D.
Power
Uncertainty
Independence
Impulsiveness
Type of Business Ownership
 Sole Proprietorship
 Partnership
 Corporation
Types of Business Organizations
 Sole Proprietorship
 Advantages
 Owner is in control



Owned by one person
Managed by one person
who is accountable to no
one but themselves
Pride of ownership
Types of Business Organizations
 Sole Proprietorship
 Advantages
 Owner keeps the profits

All earning of the
company are the income
of the owner
Types of Business Organizations
 Sole Proprietorship
 Advantages
 Owner enjoys tax advantages

Tax return of the business and
the owner are on the same tax
return
o Company does not pay
taxes separately from the
owner
o Owners can write off
expenses for costs that are
related to the business
• Business tax deductions –
lowers taxable income –
Example – business owner
may use their car for
business which allows them
to “write off ” part of the
expenses of owning the car
Types of Business Organizations
 Sole Proprietorship
 Advantages
 Sole Proprietorships are easy
to set up
 Very little costs or
paperwork
o Business license
Types of Business Organizations
 Sole Proprietorship
 Disadvantages
 Unlimited liability

Owner has total liability
for what the business does
o Business fails, owner is
responsible
o Debts of the business
are debts of its owners
o Business gets sued,
owner has to pay
o All personal assets are
at risk if business fails,
bills don’t get paid, etc.
Types of Business Organizations
 Sole Proprietorship
 Disadvantages
 Owner has limited resources
Financial resources of the
owner and the business are
the same
 Hard to obtain money for
business growth, etc.
o Banks will not lend
money to business
owners if risk is high
 Suppliers may be hesitant to
provide products and
supplies on credit
 Owner responsible for
paying workers

Types of Business Organizations
 Sole Proprietorship
 Disadvantages
 Owner must work hard


Longer hours than people
who work for wages
Can lead to a variety of
problems
Types of Business Organizations
 Sole Proprietorship
 Disadvantage
 Lack of permanence


Business exists only as long
as its owner
If owner dies, retires, etc.
the business ceases to exist
Questions?
Sole proprietorships are often owned by __________.
A.
B.
C.
D.
Financial institutions
A small group of investors
One person or a married couple
People with a common interests
Questions?
Sole proprietorships are often owned by __________.
A.
B.
C.
D.
Financial institutions
A small group of investors
One person or a married couple
People with a common interests
Question?
In a sole proprietorship, __________ receive all of the
profits.
A.
B.
C.
D.
Banks
Owners
Partners
Investors
Question?
In a sole proprietorship, __________ receive all of the
profits.
A.
B.
C.
D.
Banks
Owners
Partners
Investors
Questions
Since sole proprietorships have __________, personal assets may be
used to pay business debts.
A.
B.
C.
D.
Limited resources
Unlimited liability
Earnings potential
Several investors
Questions
Since sole proprietorships have __________, personal assets may be
used to pay business debts.
A.
B.
C.
D.
Limited resources
Unlimited liability
Earnings potential
Several investors
Types of Business Organizations
 Partnerships
 Partnership – when two or
more people go into
business together as coowners
 Less common that
proprietorships or
corporations, but there are
still nearly 2.5 million of
them in U.S.
Types of Business Organizations
 General Partnerships
 Manager rights are clear
 All partners help manage the company
 All partners share in the profits or losses from the business
 Most common partnership is two people, but doesn’t have to be
o Profits usually split 50/50
 Manager duties are clear
 Partnership agreement clearly states what each partner has agreed to.
(agreement drawn up by an attorney)
Types of Business Organizations
 Partnership Agreement covers things such as
 Name of the company
 Nature of the business
 Length of the agreement (usually perpetual)
 Financial investment of each partner
 Specific duties and responsibilities of each partner
 How profits and losses are shared
 What will happen in the event a partner wishes to leave the
partnership
 What will happen if there is a dispute or disagreement between
the partners
Types of Business Organizations
 General Partnerships
 Advantages
 Partners can pool their resources which increases the amount of
investment available
 Increase in the ability to obtain credit
 Workload can be shared
 Shared responsibilities and share tasks can result in more expertise
 Easy to set up general partnerships
 Basic contract is simple to read and understand and is relatively
inexpensive (standard agreement)
 Partnership does not pay taxes
 Partners pay taxes individually based on their portion of income
Types of Business Organizations
 General Partnerships
 Disadvantages (many can be eliminated with a well written partnership
agreement)
 Unlimited liability of both partners
o Partners fully liable for the debts of the partnership
 May be hard for one partner to leave the business in the event of a
dispute
 Decision making can be frustrating and complicated
Types of Business Organizations
 Limited Partnership
 A business where there is at least one general partner and at
least one limited partner
 Limited partner is one who contributes money but does not
participate fully in the business
 Limited partner is entitled to part of the profits (as stated in the
agreement)
Types of Business Organizations
 Limited partner does not have management of daily
responsibilities
 Liability – of the limited partner
 Are held liable for the debts or obligations of the company only
to the extent of their financial investment in the company
(personal assets are not at risk)
 Liability – of the general partners
 Same as with a general partnership
 Full responsibility for managing the company
 Unlimited liability for debts and obligations of the company
Types of Business Organizations
 Corporation
 A legal entity that is most often created under state laws and is
separate and distinct from its owners
 Can enter into agreements, own property, and borrow money
 Can sue and be sued
 Can continue after the original owner has departed
 Owned by its stockholders
Types of Business Organizations
 Advantages
 A shareholder is not liable for the debts or actions of the
corporation as a whole
 The most each stockholder can lose is the amount they have
invested
 Ownership is easy to transfer – shares of stock can be bought
and sold easily
Types of Business Organizations
 Corporation
 Disadvantages
 A corporations earnings are taxed twice


A corporation files its own tax return and pays taxes on its income
Subsequently, some of the earnings is then paid out to stockholders in
the form of dividends
o These dividends are counted as income to the stockholders and
therefore, they must pay taxes on them
o Even though the corporation has paid a tax on the income, the
stockholders pay tax on it too. Double taxation!!
Question?
Corporations are owned by __________.
A.
B.
C.
D.
Partners
Governments
Stockholders
Financial institutions
Question?
Corporations are owned by __________.
A.
B.
C.
D.
Partners
Governments
Stockholders
Financial institutions
Question?
Ownership of a corporation is __________ to transfer.
A.
B.
C.
D.
Easy
Difficult
Impossible
Impractical
Question?
Ownership of a corporation is __________ to transfer.
A.
B.
C.
D.
Easy
Difficult
Impossible
Impractical
Question?
Which of the following is the most that a shareholder in a corporation
can lose?
A.
B.
C.
D.
all personal assets
amount paid for owned shares
a percentage of total corporate losses
interest collected from owned shares
Question?
Which of the following is the most that a shareholder in a corporation
can lose?
A.
B.
C.
D.
all personal assets
amount paid for owned shares
a percentage of total corporate losses
interest collected from owned shares
Question?
Shareholders have __________ liability because they are not
responsible for the debts or actions of the corporation.
A.
B.
C.
D.
Limited
Personal
Unlimited
Corporate
Question?
Shareholders have __________ liability because they are not
responsible for the debts or actions of the corporation.
A.
B.
C.
D.
Limited
Personal
Unlimited
Corporate
Question?
When corporations and shareholders each pay taxes on the same
money it is called __________ taxation.
A.
B.
C.
D.
Dual
Repeat
Double
Shadow
Question?
When corporations and shareholders each pay taxes on the same
money it is called __________ taxation.
A.
B.
C.
D.
Dual
Repeat
Double
Shadow
Types of Business Organizations
 Nonprofit Organizations
 A business whose purpose is to benefit the general public
 No profit motive
 Over 1 ½ million nonprofit organizations in the U.S.
Types of Business Organizations
 Nonprofit Organizations
 Nonprofits and For-Profits:
 Similarities

Incorporation
o Approval to incorporate granted by the state
• Part of the approval process is to declare the purpose of the company

o Qualify for limited liability
Use of earnings
o Cover expenses
o Pay employees
o Achieve the organizations purpose
Types of Business Organizations
 Nonprofits and For-Profits:
 Differences
 “Extra Money”
Money beyond what is needed to pay reasonable salaries and expenses
must be used only to further the nonprofits purposes
o Cannot be paid out as dividends
o No stockholders
 Regulation
 Nonprofits face stricter regulation
o Can’t donate money to campaigns

Types of Business Organizations
 Nonprofits and For-Profits:
 Differences
 Taxes

Nonprofits that are exempt from federal taxes
o Charitable
o Scientific
o Public safety
o Literary
o Educational
o Prevention of cruelty to children or animals
o Develop national or international sports
Question?
A __________ is a business whose purpose is to benefit the general
public.
A.
B.
C.
D.
Sole proprietorship
Limited partnership
Nonprofit corporation
Multinational corporation
Question?
A __________ is a business whose purpose is to benefit the general
public.
A.
B.
C.
D.
Sole proprietorship
Limited partnership
Nonprofit corporation
Multinational corporation