Entrepreneurs and Business Organizations

Chapter 9

What is an entrepreneur?

Entrepreneur: a person or group who invests, creates, or takes on the risk of starting a new business or company. Or, they might have an idea that they think they can profit from.

Entrepreneurs affect or help the economy by:• Creating jobs• Meeting consumer demand for products/services• increasing economic growth

Successful Entrepreneurs are/have…

AmbitiousSelf-confident

Willing to take risks

Energy and self-discipline

Perseverance

Problem-solving skillsOrganizational skills

Ability to motivate others

Risks and Rewards of Starting a Business

Risks• Failure• Raising the money for

the company• Financial insecurity• Hiring the right

employees• Long hours• Little to no pay

Rewards• Potential for increased

pay or profit• Freedom in your life• Enjoyment of your

hobby as your profession

• Be your own boss

3 Main Types of Businesses

Sole Proprietorship: a business owned and managed by one person.

Partnership: a business owned by two or more co-owners who share profits.

Corporation: owned by public or private shareholders who own stock

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Sole Proprietorship

Advantages• Easy start-up

• Little paperwork• Business name, permits,

licenses• Few restrictions• Make all decisions• Keep profits• File individual taxes

• No business taxes• Easy to close down

Disadvantages• Unlimited liability

• You pay all losses• Personally responsible

for all debt• Create LLCs for

protection• Limited Liability

Company• Limited growth

potential• Limited life

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Partnerships

Partnerships have 2 or more owners who share the profits and liabilities of the company.

Common partnerships include:• Family owned business• Law firms• Medical practices

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Different Types of Partnerships

General Partnerships (GP): all owners share total liability for debts and are involved in all decisions

Limited Partnership: there is at least one general partner and at least one limited partner.

• Limited partner: referred to as a “silent partner”. This person contributes financial capital (money) to the business but does not have a say in day-to-day operations. They only lose what they invest.

Limited Liability Partnership (LLP): owners act like GPs but have limited liability

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Advantages and Disadvantages of Partnerships

Advantages• Easy start- up, just need

legal agreement: Articles of rules and regulation

• Few restrictions• Share decision-making

power• Opportunities for

specialization• File individual taxes• Larger growth potential

• Banks more willing to loan out to multiple partners

Disadvantages• Unlimited liability for

GP• Conflict between

partners• Continuity issues

• Partners may die or leave the business

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Corporations

A business becomes a corporation when it is owned by shareholders who purchased shares of the company’s stock.

Venture Capitalist: someone who invests money into a new promising business and receives share of ownership of the company. They provide capital (money) so that a company can grow its business

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Two Types of Corporations

Privately Owned: owned by one person or a very small group. Stocks sold to a select group of people

Publically Owned: offers stock to the general public and has many shareholders

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Multinational Corporations

Corporations have business in multiple countries

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Advantages and Disadvantages of Corporations

Advantages• Limited liability

• Shareholders only lose what they invest

• Larger growth potential• Professional

management• Long business life

Disadvantages• Complex start up• Loss of control

• Board of directors make decisions, business founder

• Increased government regulation• Stockholder meetings required

• Double taxation• Business pays taxes as well as

shareholders

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Franchises, Cooperatives, and Non-Profits

Franchise: In which one company has many individual outlets to sell its products or services

Cooperatives: business that is owned and operated by a group of individuals for their shared benefit. The goal is to make goods and services more affordable, not to make a profit.

• Must have some sort of membership to take advantage of shared benefits.

Non-profit: Functions like a business aside from the fact that making a profit is not the goal. They are established to support a public or private goal.

• Foundations, associations, booster clubs

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Advantages and disadvantages of Franchises

Advantages• Company expands with

each new franchise• Cheaper for the company

to open new locations itself

• New owners receive a support system

• Better chances for profit• A customer base already

exists

Disadvantages• Must pay fees to open

the franchise• Must pay royalties (on

top of usual costs of operations)

• Lack of independence in terms of running the business

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Rights and Responsibilities of Businesses

Rights• Right to advertise• Hire and fire employees• Screen employees• Be compensated for

property lost • Govt must pay for property

they take• Right to protect

intellectual property• Trademarks, patents

Responsibilities• Obtain permits and

licenses• Pay taxes• Deal honestly• Honor contracts• Create an equal

opportunity workplace• Produce safe products• Protect whistle-blowers

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Business Ethics: Legal vs. Ethical

There are things that companies are legally able to do, but this does not mean that they should do those things.Let's Get Ethical

Morality is starting to play a big role in the business market. Do you notice a growing trend in companies appealing to your morals?

Corporate Responsibility: taking responsibility for a company’s actions that impact

Corporate Citizen: something that business strive to be by being considerate of the interests of their stakeholders (those who have an interest in or are affected by a company’s actions)

Business Ethics: ways in which companies address corporate responsibility. They are principles that guide the actions of the company and its employees.

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Must Think About the Consumers

Consumer Sovereignty: power of consumers to affect the decisions of a company.

Consumers communicate their power through their spending. What consumers spend their money shows what they want.

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