Economics Marketing 1

1. EconomicsMarketing 1 Business Ownership and For Profit and Non-Profit Business;

2. Business Ownership • A characteristic of free enterprise- private ownership • Types of ownership determined through the legal organization of the business • Type of ownership is key decision for entrepreneur • Four forms of business ownership

3. Forms of Business Ownership • Sole Proprietorship • Partnership • Corporation • Limited Liability Company (LLC)

4. Sole Proprietorship • Owned and operated by one person • Most common form of business ownership • Approximately 70% of all U.S. businesses are sole proprietorship • Sole Proprietor provides all of the skill, money, and management to run the business. • Assumes ALL risk- unlimited liability • Retains ALL profit • Income taxed as personal income

5. Examples of Sole Proprietors • Housekeeping service • Landscape service • Plumber • Electrician • Web site designer/manager • CPA/ Accounting service • Shop/boutique owner • Restaurant owner Business where ONE person owns and operates the business

6. Partnership • Legal agreement between two or more people for joint responsibility for success or failure of business • Represents about 10% of businesses in U.S. • Formed by partnership agreement- legal document • Specifies responsibilities of each partner; • Profit/Loss shared by partners • Two types of Partnership: General Partnership and Limited Partnership

7. General Partnership • Each partner shares in profits and losses – profit taxed as personal income for each partner • Unlimited liability for company debts

8. Limited partnership • Each partner responsible for debt of company but limited to the amount of investment in the company • Required that there is at least ONE General Partner who has unlimited liability • In exchange for limited risk, limited partners do not have a voice in the management of the company • Withdrawal of a limited partner does not dissolve the company

9. Corporation • Created by state of federal statute that authorizes individuals to operate an enterprise • Owned by several people but is considered “one person” under the law • Must obtain legal permission by state to operate- process begun with an application to state. Once permission granted this becomes the charter for the corporation • Considered to be a separate legal entity- can borrow money, take out loans, sue, sign contracts, and buy and sell property

10. corporations • Ownership of company is divided in to shares of stock. Stockholders are owners of company- can sell stock to raise capital for the corporation • Stockholders elect Board of Directors to run the company • Board of Directors make top management decisions affecting the business • Corporations offer owners limited liability (personal affects of owner cannot be taken if company does not meet its financial obligations or is sued) • Corporation is not affected by death, incapacity, or bankruptcy of a stockholder or officer

11. Types of corporations • Private- formed by private persons; broad category; can be “closely held”- which does not sell stock on open market or “publicly held”- which does sell stock • Public- created by federal, state, or local government- can include schools, transit

12. Limited Liability Company (LLC) • Relatively new form • Hybrid of partnership & corporation • Owners (called members) are shielded from personal liability • All profits/losses pass directly to owners without taxation

13. Class Activity • Students work with a partner or individually to create a chart that will compare and contrast the advantages and disadvantages of each form of business ownership • Students may use lap tops and desktops in classroom to complete assignment • Charts should be completed using a word processing program such as Word • Submit to teach through e-mail at end of class • 50 Points