Introduction to Business Business in the U.S. Economy: Chapter 5Size of Businesses: Largest number of businesses-- nearly 18 million--have no employees other than the owner. About 5 million companies employ less than 20 people. 500,000 employ 20-100 people 103,000 large U.S. businesses employ 100 workers or more. 930 companies employ over 10,000 peopleWhy is business so important?Employment Wages used to purchase goods/services Profits by businessesshared with owners and investors Taxes to federal, state and local governmentsGovernment uses money to fund clean water, well-maintained streets,police/fire, and schools.Impact on the Community:New business opens Hires employees Buys goods from other businesses intowns Employees then in turn spends in the community for the goods andservices they need.**Large businesses also attract other businesses to support the large business.Successful businesses contribute to more jobs, more income and a thrivingeconomy in the community.
Business Activities: 1. Generating Ideas: a. Business begins with new idea b. Must continue to improve and develop new ideas c. Research and development 2. Raising Capital: a. Use financial resources to build, buy equipment, hire and train workers b. Large amount of capital is needed to start business 3. Employ and Train Personnel a. Businesses need human resources b. They pay wages, benefits, and employment taxes c. Further training also used with new technology, new tasks, products, etc. 4. Buy Goods and Services: a. All businesses buy goods and services b. Businesses use products to make other goods, etc. c. Retailer buys an assortment of products to sell to customers d. Advertising, legal and accounting, lawn care and building maintenance 5. Marketing Goods and Services: a. Without marketing, even the best products may remain unsold. 6. Maintain Business Records: a. Records are needed so owners and managers can track performance and make decisions. b. Customers need information on orders and payments c. Technology makes easy to maintain and access records.
TYPES OF BUSINESSES:Producers: Producers create the products and services used by individuals and other businesses. They are responsible for using resources to make something that is needed by others. Extractors take resources from nature for direct consumption or for use in developing other products. Manufacturers get supplies from other producers and convert them into products.Intermediaries: Businesses involved in selling the goods and services of producers to consumers and other businesses. Common types are retailers and wholesalersService Businesses: Carries out activities that are consumed by its customers. It does not offer products for sale. Examples: Dentists, physicians, lawyers, pet sitters, painters, movers, etc. Fastest growing part of the economy. Almost 60% of all U.S. Employment is now service producing.FORMS OF BUSINESS OWNERSHIP:Proprietorship: Business owned and run by just one person. Few legal requirements, easiest to start and end. Gives sole control over all business decisions Owner receives all profits made by business Responsible for all debts and failures of business No shelter of personal assets if business fails.
Partnership: Business owned and controlled by 2 or more people who have entered into a written agreement. Legally easy to start Owners both responsible for key business decisions and functions Partners share both investments and profits based on terms in the partnership agreement Each partner is liable for all debts of businessCorporation: Separate legal entity formed by documents filed with state. Owned by one or more shareholders and managed by a board of directors. Investors purchase shares of stock Corporations more difficult to form than any other type of business. Investors won’t have access to profits unless approved by board of directors Protects liability of stockholders to only the amount of money they have invested.CHOOSING A FORM OF BUSINESS OWNERSHIP:Choosing a Proprietorship Most businesses begin as a proprietorship Often people start businesses want freedom to work for themselves May stem from a hobby or passion Need account for income and expenses and pay taxes on the profits of the business May need to choose business name and register name with the local, state and federal gov’t.
Provides tax advantage to owner All income is taxed as part of your personal income – business expenses can be used to reduce the income.Choosing a Partnership: Is a little more complex and formal than proprietorship Have a written partnership agreement. Details the rules and procedures that guide ownership and operations. Agreement shows how profits and losses will be divided among the partners Advantage is 2 or more people can contribute to investment needed to start the business as well as the expertise required to run a business. There is no protection for personal assets of any partner.Choosing a Corporation: Most popular form of ownership for large businesses Corporations subject to many more laws and more difficult to form than either proprietorships or partnerships. Advantages are corporations are treated as “individual” by the gov’t. Must follow the laws of the state in which they are organized. Must file an Articles of Incorporation – that is a legal document that defines ownership and operating procedures and conditions for the business. Business must create corporate bylaws. Must name a Board of Directors Corporation issues shares of stock to the investors Liability of owner is limited to the amount of money invested. Must pay corporate taxes on profits earned. Investors also pay taxes on their individual earnings from the business.
OTHER TYPES OF OWNERSHIP:Limited Liability Partnership: Identifies investors that cannot lost more than theamount of their investment. Costly to set-up.Joint Venture: unique business organization by two or more other businessesorganized by two or more businesses to operate for a limited time and for aspecific project.S-Corporation: Favored by many small businesses. Offers the limited liability of acorporation. All income is passed through to the owners based on theirinvestment and is taxed on their individual tax returns.Limited Liability Corporation (LLC): Provides liability protection for owners. Has asimpler set of organizing and operating requirements than a corporation.Non-profit Corporation: Group of people join to do some activity that benefits thepublic. Ex.: education, charity, etc.Non-profit corporations are free from corporate taxes. They can raise funds byreceiving grants and donations from individuals and businesses. Government mustapprove purpose and operations.Franchises: Written contract granting permission to operate a business to sellproducts and services in a set way. Company that owns the product or service andgrants the rights to another business is known as the franchiser. Companypurchasing the rights to run the business is a franchisee. Franchise is way to expand a business using the investments of others while maintaining control over the name, product quality, and operating procedures. Example of successful franchises: Jiffy Lube, Century 21 Real Estate, Merry Maids, MAACO Auto Painting