Transcript Stock Market Game

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Business is owned and run by one
individual
 Nearly 76% of all businesses
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Owner receives all of its profits
and bear all of its losses.
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Owner is personally liable for all
of the companies debt
 Debt is money that it owes to other
businesses or people
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Advantages
 Easy to start
 Inexpensive to create
 Gives the owner complete authority
over all business decision
 Receives all of the profits
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Advantages
 Least regulated for of ownership
 Business itself pays no taxes
because it is not separate from the
owner
▪ Income is taxed at the personal rate of
the owner
▪ Personal rate is lower than the corporate rate
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Disadvantages
 The owner has unlimited liability
▪ Means that the owner is fully
responsible for all debts and actions of
the business
▪ Personally responsible from the owner’s
personal assets
▪ Assets – things that you own
 Raising Capital
▪ Money
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Disadvantages
 Owners abilities and skills are
limited
 Death of the owners automatically
dissolves the business unless there
is a will.
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How to start
 Is as simple as coming up with a
company name
▪ When using a name other than your
own, you must apply for a Certificate of
Doing Business Under an Assumed
Name
▪ Often called: DBA – doing business as
 Obtain from local government offices
 Purpose is to ensure that the name is not
being used in the area
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How to start
 If you are going to hire employees
▪ Need an Employer Identification
Number (EIN)
▪ Comes from the IRS (Internal Revenue
Service)
▪ Used for tax purposes to track federal income
tax withheld and federal income tax returns
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How to start
▪ If you are going to be a vendors or
retailer (sell items)
▪ Sales Tax Identification Number
 Assigned by state’s Department of Revenue
 Retailer acts as an agent for the state by
collecting and remitting the required
amount
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Unincorporated business with
two or more owners
Most common business
organization
Partners share decisions, assets,
liabilities, and profits
Requires a DBA (Doing Business
As) when the last names are not
used in naming the business
Advantages
 Can draw on the skill,
knowledge, and financial
resources of more than one
person
Two types of Partnership
1. General
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Participant has unlimited personal
liability and takes full
responsibility for managing the
business
Any partner can bind the
partnership on contracts
Two types of Partnership
2. Limited
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Partners liability is limited to his or
her investment
Cannot be actively involved in
managing the business
Advantages of Partnership
 Inexpensive to create
 Share Ideas
 Secure investment capital more
easily and in greater amounts
Disadvantages of Partnership
 Difficult to dissolve
 Personality conflicts
▪ Usually over authority
▪ Must have clear roles
 Technical Disadvantages
▪ Can be held liable for other partners
actions
▪ Bound by contracts other partner signs
Planning for Successful Partnership
1. Share business responsibilities
2. Put things in writing
3. Be honest about how the
business is doing
4. Establish partnership
agreement before the business
is started
Planning for Successful Partnership
1. Have a legal written agreement
a. How profits will be shared
b. How responsibilities will be
divided
c. What happens if one partner dies
or quits
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Corporation
 Business that is registered by a
state and operates apart from its
owners
 Lives on after the owners have sold
their interests or passed away
1. C-Corporation
2. Subchapter S Corporation
3. Nonprofit Corporation
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Pays taxes on earnings
Shareholders pay taxes as well
File Certificate of Incorporation
with the state
Issue stocks
 Shareholders – Owners of
Corporation
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Required to have a Board of
Directors
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Advantages
 Status – Corporations get help
getting loans
 Limited Liability – Only liable up to
the amount of their individual
investment
 Perpetual Existence – Continuous
life
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Advantages
 Owners can create pension and
retirement funds and offer profit
sharing
 Tax Advantage – Deduct certain
expenses from their reported
income (Salaries and Contribution
to benefit plans)
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Disadvantages
 Expensive to start up – Cost $500 to
$2500 to create
 Taxed – Corporations income is
heavily taxed
▪ Corporation pay tax on profits
▪ Shareholders pay tax on dividends
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Taxed like a partnership
 Avoids double taxation
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Advantage
 Profits taxed only once at
shareholders personal tax rate
 S Corp is not a taxpaying entity
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Disadvantage
 Can have no more than 75
stockholders who must be US
citizens
 Only have one class of stock
 Cash businesses are S Corps
▪ If business produces enough cash, the
form works
▪ If business shows a large taxable profit
but has not generated enough cash to
cover the taxes, the owners must pay
out of their earnings
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Businesses that benefit certain
causes in the community
Make money for reasons other
than the owner’s profit
Business can make profit,
however, the profit must remain
within the company and not be
distributed to shareholders
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Company whose owners and
managers enjoy limited liability
and some tax benefits, but it
avoids some restrictions
associated with S Corporation
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Benefits
 Simpler to start up than a
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corporation
Allows for flexibility of a partnership
structure
Protects it owners with the limited
liability of a corporation
Not subject to double taxation
Not limited on the number of
members or their status
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Is a company with publicly traded
shares that anyone can buy in a
stock market.
Is also legally separated from the
stockholders (people that own
the stock) and the managers that
run it
Stock holders own the company
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Stockholders are not responsible
for the company’s debt
A corporation continues to exist
even if the stockholders or
managers change
Stockholders can easily sell their
ownership shares through the
stock market
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May be owned by an individual
Or privately sell stocks to fund
the business
Stocks are not sold publicly on
the stock market
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Initial Public Offering – IPO
 Initial sale of stock to the public by
investment bankers
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Underwriter – Investment
banker that buys an entire new
securities issue from a company
and resells it
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3 Major stock markets
1. NYSE – New York Stock Exchange
2. NASDAQ – National Association
of Securities Dealer Automated
Quotation
3. AMEX- American Stock Exchange
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Common Stock
Preferred Stock
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Shares of the company do not
guarantee a dividend (Part of the
companies profit that are shared
with the stockholder)
Dividend may be more then
preferred stock holders
Right to vote for Board of
Directors
Right to vote at Annual Meeting
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Guaranteed dividend
No voting rights
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Securities and Exchange
Commission (SEC)
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Earnings – The amount of money
that remains after subtracting
the companies expenses from its
revenue
Investor – Someone who risks
funds with the hope of it
increasing in value