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Splash Screen
Chapter Menu
Chapter Introduction
Section 1: Starting a Business
Section 2: Sole Proprietorships and Partnerships
Section 3: The Corporate World and Franchises
Visual Summary
Chapter Intro 1
The profit motive acts as an incentive for people to produce and sell goods and services.
Chapter Intro 2
Imagine that you want to start a business. You will need to decide what your business will do, how you would like it to be structured, and whether you would like to work alone or with a partner. In this chapter, read to learn about the different ways that businesses are organized and what it takes to start a business.
Section 1-Main Idea
Section Preview
In this section, you will learn about what a person needs to do to start his or her own business, as well as various forms of help available for business owners.
Section 1-Key Terms
• entrepreneur
• startup
• small-business incubator
• inventory
• receipts
Content Vocabulary
A. A
B. B
C. C
Section 1-Polling Question
Do you have any interest in starting your own business?
A. Definitely
B. Some interest
C. Not at all
A B C
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Section 1
Getting Started
Businesses are started by entrepreneurs who are willing to take risks.
Section 1
Getting Started (cont.)
• A person who starts his or her own business is called an entrepreneur.
Section 1
Getting Started (cont.)
• An entrepreneur must:
– Gather the relevant factors of production to produce their good or service.
– Decide on the form of business organization that best suits their purposes.
– Learn about the laws, regulations, and tax codes that will apply to their business.
– Investigate their competition.
Section 1
Getting Started (cont.)
• The federal government’s Small Business Administration, as well as other government agencies, often help finance startups.
• A small-business incubator and the Internet also provide a wide array of information on how to start a business.
View: Sources of Help for Business Startups
A. A
B. B
C. C
Section 1
The small business incubator’s goal is to generate _____.
A. jobs
B. economic growth
C. profit
A B C
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Section 1
Elements of Business Operation
There are four basic elements of business operation: expenses, advertising, record keeping, and risk.
Section 1
Elements of Business Operation (cont.)
• Every business must consider four basic elements:
– Expenses:
• Inventory and equipment
• Wages
• Taxes
• Insurance
• Utilities
• In order to find out if you will make a profit, all expenses must be subtracted from your receipts.
Section 1
– Advertising: notifying potential customers you are open for business.
– Record keeping: you will need a system to track your expenses and income.
Elements of Business Operation (cont.)
• There are programs on the Internet or software that can help with this.
• Net worth—the difference between what you own and what you owe.
• You also need to file your receipts properly for tax purposes.
Section 1
– Risks: you must balance the risks against the advantages of being in business for yourself.
Elements of Business Operation (cont.)
A. A
B. B
C. C
D. D
Section 1
A B C D
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Which one of these elements would make owning your own business the hardest for you?
A. Expenses
B. Advertising
C. Record keeping
D. Risk
Section 2-Main Idea
Section Preview
In this section, you will learn about common ways to organize a business.
Section 2-Key Terms
• sole proprietorship
• proprietor
• unlimited liability
• assets
• partnership
• limited partnership
• limited liability company
• joint venture
Content Vocabulary
A. A
B. B
C. C
Section 2-Polling Question
Can you explain the difference between a sole proprietorship and a partnership?
A. Yes
B. Somewhat
C. Not at all
A B C
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Section 2
Sole Proprietorship
A sole proprietorship is a business owned and operated by one person.
Section 2
Sole Proprietorship (cont.)
• The most common form of business organization is the sole proprietorship.
• The owner of a business is called the proprietor.
Section 2
Sole Proprietorship (cont.)
• Advantages:
– Satisfaction from being the boss and making the decisions.
– Receives all profits
– Low taxes
Section 2
Sole Proprietorship (cont.)
• Disadvantages:
– It can be demanding and time consuming.
– You have unlimited liability
– Personal assets may be seized to pay off debt.
A. A
B. B
C. C
Section 2
Would you feel safe starting a business by yourself?
A. Definitely
B. Partially
C. Not at all
A B C
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Section 2
Partnerships
A partnership is a business owned and operated by two or more individuals.
Section 2
Partnerships (cont.)
• Businesses are also operated by partnerships. In a partnership, the partners sign a legally binding document describing how they will operate the business.
Section 2
Partnerships (cont.)
• Advantages:
– Each partner can work in his or her area of expertise.
– Partners may have additional funds to use in business.
– Taxes tend to be low.
– The borrowing potential is high.
Section 2
Partnerships (cont.)
• Disadvantages:
– Decision making can be slower.
– Disagreements can lead to problems.
– You must share the profits.
Section 2
Partnerships (cont.)
• Some partnerships are specialized:
– Limited partnership
– Limited liability company
– Joint venture
A. A
B. B
Section 2
Would you prefer to own a business yourself, or with a partner?
A. Sole proprietorship
B. Partnership
A B
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Section 3-Main Idea
Section Preview
In this section, you will learn about the characteristics and structure of corporations and franchises.
Section 3-Key Terms
• corporation
• stock
• limited liability
• articles of incorporation
• corporate charter
• common stock
• dividend
• preferred stock
• bylaws
• franchise
Content Vocabulary
A. A
B. B
C. C
Section 3-Polling Question
Do you understand what a corporation is?
A. Yes
B. Somewhat
C. Not at all
A B C
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Section 3
Corporations and Their Structure
Stock represents ownership rights to a certain portion of a corporation’s profits and assets.
Section 3
Corporations and Their Structure (cont.)
• A corporation is a business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts, and so on.
• Stock represents ownership rights in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation.
Section 3
Corporations and Their Structure (cont.)
• In terms of the amount of business done, the corporation is the most significant type of business organization in the United States.
• A major advantage to operating as a corporation is its limited liability.
• A disadvantage is that they are taxed more heavily than other forms of business organizations.
View: Comparing Corporations, Partnerships, and Proprietorships
Section 3
Corporations and Their Structure (cont.)
• In order to form a corporation, its founders must do three things:
• Register their company with the government of the state in which it will be headquartered.
– You will have to file the articles of incorporation with the state where the corporation will be headquartered.
Section 3
Corporations and Their Structure (cont.)
• These articles include:
• Name, address, and purpose of the corporation.
• Names and addresses of the initial board of directors.
• Number of shares of stock to be issued.
• Amount of money capital to be raised through issuing stock.
– If approved, the state grants you a corporate charter or license to operate in that state.
Section 3
Corporations and Their Structure (cont.)
• Sell stock.
• Common stock does not, however, guarantee a dividend.
– Common stock is issued to raise funds. Stockholders are granted voting rights.
– Preferred stock can be issued to raise funds. Holders have no voting rights.
• Preferred stock guarantees a dividend each year and has first claim if corp goes out of business.
Section 3
Corporations and Their Structure (cont.)
• Along with the other shareholders, they must elect a board of directors.
• They hire officers to run the business on a day to day basis.
– The partners select the first board of directors, and stockholders elect the next board. The bylaws of the corporation govern this election.
– The board is responsible for supervising and controlling the corporation.
A. A
B. B
C. C
Section 3
Which type of business do you feel is the best and why?
A. Corporation
B. Partnership
C. Proprietorship
A B C
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Section 3
Franchises
A franchise is an arrangement in which a person or group obtains the right to use the name and sell the products of another business.
Section 3
Franchises (cont.)
• Many fast-food chains, gas stations and hotels operate as a franchise. The parent company (the franchisor) sells to another business (the franchisee) the right to use the franchisor’s name and sell its products.
– The franchisee pays a fee that may include a percentage of all revenues taken in.
– In return, the franchisor will help the franchisee set up their business.
Section 3
Franchises (cont.)
• Advantages:
– Name recognition
– A proven way of doing business
– Advertising dollars largely paid by franchisor
Section 3
Franchises (cont.)
• Disadvantages:
– Loss of control in running the business the way you might like.
– Sometimes legal trouble if one of the parties fails to hold up its side of the agreement.
A. A
B. B
C. C
Section 3
Do you feel that owning a franchise is a smart way to “own” a business?
A. Yes
B. Somewhat
C. Not at all
A B C
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VS 1
There are four main elements of business operation: expenses, advertising, record keeping, and risk.
VS 2
Sole proprietorships and partnerships are two common ways that businesses are organized.
VS 3
The majority of business revenues in the United States are brought in by corporations, which are owned by many people but treated by law as if they were individuals.
Figure 1
Figure 2
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Vocab1
entrepreneur: person who organizes, manages, and assumes the risks of a business in order to gain profits
Vocab2
startup: a beginning business enterprise
Vocab3
small-business incubator: private or government-funded agency that assists new businesses by providing advice or low-rent buildings and supplies
Vocab4
inventory: extra supply of the items used in a business, such as raw materials or goods for sale
Vocab5
receipts: income received from the sale of goods and/or services; also, slips of paper documenting a purchase
Vocab6
sole proprietorship: business owned and operated by one person
Vocab7
proprietor: owner of a business
Vocab8
unlimited liability: requirement that an owner is personally and fully responsible for all losses and debts of a business
Vocab9
assets: all items to which a business or household holds legal claim
Vocab10
partnership: business that two or more individuals own and operate
Vocab11
limited partnership: special form of partnership in which one or more partners have limited liability but no voice in management
Vocab12
limited liability company: type of business enterprise that protects members against losing all of their personal wealth; members are taxed as if they were in a partnership
Vocab13
joint venture: partnership set up for a specific purpose for a short period of time
Vocab14
corporation: type of business organization owned by many people but treated by law as though it were a person; it can own property, pay taxes, make contracts, and so on
Vocab15
stock: share of ownership in a corporation that entitles the buyer to a certain part of the future profits and assets of the corporation
Vocab16
limited liability: requirement in which an owner’s responsibility for a company’s debts is limited to the size of the owner’s investment in the firm
Vocab17
articles of incorporation: document listing basic information about a corporation that is filed with the state where the corporation will be headquartered
Vocab18
corporate charter: license to operate granted to a corporation by the state where it is established
Vocab19
common stock: shares of ownership in a corporation that give stockholders voting rights and a portion of future profits (after holders of preferred stock are paid)
Vocab20
dividend: portion of a corporation’s profits paid to its stockholders
Vocab21
preferred stock: shares of ownership in a corporation that give stockholders a portion of future profits (before any profits go to holders of common stock), but no voting rights
Vocab22
bylaws: a set of rules describing how stock will be sold and dividends paid
Vocab23
franchise: contract in which one business (the franchisor) sells to another business (the franchisee) the right to use the franchisor’s name and sell its products
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