Understand the nature of business.

1. Understand the nature of business. 2.01 Understand the types of business ownership.

2. Why do we need to know about businesses?

3. Why do we need to know about businesses? Which company would you want to work for? Enron- sells Energy- natural gas, etc. http://www.nawbo.org/imageuploads/video_southwest.jpg http://www.photohome.com/pictures/texas-pictures/houston/enron-center-2a.jpg

4. If you chose Southwest… • You would be happy.  • They have been voted one of the best places to work. • Employees receive bonus checks when the company makes a profit. • They have always made a profit except for one quarter after 9-11.

5. If you chose Enron… • You would be unhappy.  • They cheated their investors. • They went bankrupt. • All of their employees lost their pensions/401ks because the company “stole” their money. • All of the employees lost their jobs.

6. Why do we need to know about businesses? The Good and The Bad http://www.nawbo.org/imageuploads/video_southwest.jpg http://www.photohome.com/pictures/texas-pictures/houston/enron-center-2a.jpg

7. Businesses are important because… • Your are going to spend most of your life working at a business • You need to understand if they are keeping your 401k/pension safe • You need to know how what type of businesses to invest in for your 401k/pension

8. Businesses are important because… • One of our economy’s most important issues is the balancebetween allowing businesses to grow and how much they should be taxed.

9. Businesses are important because… • You may start your own business

10. Starting your own business can be… • RewardingWhat type of rewards? • What type of risks? • Risky • Choosing the right type makes all of the difference in the world!

11. Business Ownership • Sole Proprietorship • Partnership • Corporation • Franchise

12. Sole proprietorship • A business owned and run by one person • The business is typically managed by the owner. • Formation varies by state.

13. Advantages • Easy to start up • Complete control of the business • Owner receives all the profits • Limited taxes (one time taxation)

14. Disadvantages • Limited capital (money) • Unlimited liability (responsible for ALL debt) • The business is limited to the lifetime of the owner

15. Partnership • A business owned and controlled by two or more people who have entered into a written agreement • The management of the company depends on the partnership agreement.

16. Advantages • More capital and credit available than a sole proprietorship • Combined resources (money, expertise) • Shared management responsibilities • Shared risk • Work load easier to manage than a sole proprietorship

17. Disadvantages • Profits are shared • Responsible for each others decisions • Potential for disagreement among partners • Unlimited liability (depending on type)

18. Limited Liability Partnership • Identifies some investors who cannot lose more than the amount of their investment • Investors are not allowed to participate in the day-to-day business management

19. Types of Partnerships • Dormant partner plays no role and is not known to the public. • General partner plays an active role and has unlimited liability (every partnership must have at least one general partner). • Limited participate as investors and have limited liability. • Secret partner plays an active role but is secret from society. • Silent partner does not have an active role but is known to the public.

20. Types of Partnerships

21. Corporations • An organization owned by one or more shareholders and managed by a board of directors. • Ownership • Determined by purchase of stock • A stockholder, or shareholder, owns a ‘piece’ of the company • One share of common stock equals one vote

22. Advantages • Easier to obtain capital • Limited liability for shareholders • Life of the corporation is unlimited

23. Disadvantages • Double taxation (profits and earnings) • Government regulations and legal restrictions • Decision-making shared among managers, board of directors, and shareholders

24. Specialized Corporations • Subchapter S (S-corporation) • treats partners as individuals by taxing them once • Limited Liability Company • Provides limited liability protection for owners • Nonprofit corporation • A group of people who join to do some activity that benefits the public

25. Types of Corporations • Domestic - chartered in a specific state Examples located in North Carolina: • Bank of America Corporation • Lowe’s Home Improvement Store • Foreign - chartered in one state, but doing business in another state • Alien - chartered in another nation, but doing business in a state

26. Types of Corporations continued • Public-established for a governmental purposes Examples • National Science Foundation • Export-Import Bank of the United States • Private-established by individuals for business or charitable purposes. Examples • Enterprise Rent-A-Car • American Cancer Society

27. Cooperatives • Owned by members, serves their needs, and is managed in their interest • Purchase goods and services cheaper as a group than as individuals • Greater bargaining power than as individuals

28. Franchise • Permission to operate a business to sell products and services in a set way • Begins with a parent company who owns the product or service and grants the right to another business • Franchiser: the company that owns the product • Franchisee: the company purchasing the right to run the business

29. Types of Franchises • Business-format • Requires franchisee to sell products or service in a specific format • Product trade-name • Allows franchisee to sell specific products. This format is usually formed by automobile, appliance, and petroleum product