The Business Of Free Enterprise

Enterprise Vs. Entrepreneur

• Enterprise• Business organization

• Entrepreneur • Introduce new and better goods and services

or ways of doing things

Characteristics Of Entrepreneurs

• Creative individualistic official thinkers• Start at an early age• Develop and sell ordinary products• Find new ways to sell• Spot new markets and develop new products • Work to perfect their own idea• Work within an existing business

Strategies used by entrepreneurs

• Take advantage of unexpected opportunities• Respond to changing market conditions • Improve a product or process • Provide alternative goods/services• Identify population trends

Economic role of a small business

• Small business• Independently owned and operated and is not

dominate in its field of operation • Industry • Group of one or more firms that produce

identical or similar products• Small businesses are the largest percentage of

our economy

Advantage of small business

• Can add or discontinue merchandise line quickly

• Change hours of operation• Alter pricing• Can profit in small markets• Suited to time-stressed consumers• Appeal to specific demographic groups

Disadvantage of small business

• Higher failure rate than large firms for three reasons:

• Poor management • Inadequate financing • Insufficient capital slow sales heavy debt• Inability to hire highly qualified workers • Problem with salary and benefits

Reasons for owning your own business

• Personal independence • Profits are all yours BUT so are the debts• Opportunity to work hours they choose

Forms of business organization Sole Proprietorship

• Advantages • Easy to start, few regulations and forms• Free to make all decisions• All profits are yours • No separate taxes• Can reach quickly to problems• Personal satisfaction• Disadvantages • Unlimited liability• Limited funds• Lack of opportunities for employees• Competitors and ability of owner can change

Forms of business organizationPartnership

• Advantages• Easy to form no special tax • Partners bring more money to business• New and different ideas• Disadvantage• Unlimited liability • If partner dies or leaves business• Limited funds• Conflicts arise if partner disagrees

Corporations

• Must obtain a state charter • Represented by shares of stock• Stockholders are the owners • Privately held stocks are owned by a small

group or family• Can be sued, can sue, and enter into

contractual agreements

Forms of business organizationCorporation

• Advantage • Shareholders are responsible only for a debt up to their

investment• Ease of transfer of stocks buy or sell)• Stockholder dies corporation doesn’t dissolve • Raise money by selling stocks or issuing bonds• Disadvantages• Complicated and costly• Taxed twice: Tax on profits, stockholders pay taxes on dividends • When selling stocks to the public, must disclose finances and

operations

Special types of business organization

S. Corporations

• Don’t pay corporate income tax• Stockholders pay tax on dividends • May not have more than 35 stockholders and

may not own 80% or more of another corporation

Limited Liability Companies (LLC)

• Must have two or more members who function as a partner or stockholder

• Hold property in name of LLC rather than members names

• Advantage Don’t risk personal assets• Disadvantage state regulations and strict tax

rules limited life

Non-Profit Corporations

• Cover operation expenses including wages and benefits

• Normally serves educational, social, charitable, religious purposes

Government-owned Corporations

• Undertaken when the market doesn’t adequately supply a needed good or service

Cooperatives

• Individuals or companies that perform functions for the members

• Housing are multiple dwelling units owned by the tenants

• Consumer are retail businesses owned by the people who share in the profits and purchase goods/services at lower costs

• Producer Companies that manufacture and market products on behalf of the members

Franchises

• Is a license that entitles its holder to operate his or her individually owned business as if it were part of large chain of stores

Franchises

• Advantage • Company can expand with little cost to itself • Have the incentive to increase efficiency, sales,

profits• Provide training programs, financial

assistance, advertising

How large corporations are organized

• Charter • Stockholders• Board of directors • Annual Corporation report