Types of Business

1. Types of Business Chapter 22.1

2. Sole proprietorship Financial capital Partnership Articles of Partnership Corporation Charter Stock Stockholder Board of Directors Cooperative Real GDP Business Cycle 13. Civilian Labor Force 14. Unemployment Rate 15. Fiscal Policy 16. Inflation 17. Consumer Price Index (CPI) 18. Central Bank 19. Federal Open Market 20. Committee (FOMC) 21. Monetary Policy 22. Discount Rate Reserve 23. Open Market Operations Vocab – Unit 2

3. Expenses • What you need to start & continue a business • Advertising • Introduction and reminder of your business • Receipts & Record Keeping • Needs to be accurate and dependable – for profits & losses • Risk (profit vs. loss) • Risk is a consequence to the advantage of being in business 4 Elements of Business

4. Establishment of inventory Use of computers/Technology Turbo Tax Time – the opportunity cost. You could be working for someone else. Considerations When Starting a Business

5. There are three main types of businesses. They differ in size and in daily operations. • Sole-Proprietorship • Partnership • Corporation Business Types

6. Sole Proprietorship • Owned by 1 person • Easy & relatively inexpensive to start • Typically small businesses • Most common form of business • Owner receives all profits • Unlimited Liability 3 Types of Businesses

7. Advantages • Receive all profits • Quick decisions because no consultation • Relatively low taxes Disadvantages • Unlimited liability • Handle all decisions • Time consuming • Rely on own funds • Business depends on one person Sole Proprietorship

8. 2. Partnership • Owned by 2 or more individuals • Articles of Partnership – Partners sign an agreement on what each is responsible for. 3 Types of Businesses cont.

9. Limited Partnership • Partners are not equal • General Partner – has majority of control • Limited Partner – owns a small part of the business – does not voice opinions & is responsible only for what they put in to the partnership • LLPs (Limited Liability Partnerships) [mix of corporations and partnerships): Very popular with lawyers, accountants, and architects. • Joint Venture • temporary partnership to do a job

10. Advantages • Losses are shared • More efficient than proprietorships • Pay taxes on share of profit • Easier to borrow money Disadvantages • Profits are shared • Unlimited liability, most of the time • Must reach agreements • Committed partners Partnership

11. 3. Corporation • Owned by many • Started by a founder • Owned by Stockholders • Run by a Board of Directors • State government issues a charter to run the business • Complicated structure • Business has the same rights as an individual • Are Double Taxed – 1. Corp. pays a tax on its profits. 2. After profits are distributed to the stockholders – stockholders pay a tax on those earnings. 3 Types of Businesses cont.

12. Founder’s responsibilities • Register with the state government for a charter • Sell Stock • Select the initial Board of Directors • Board of Director’s responsibility • Elected by Stockholders – act on behalf of the stockholders. • Supervise & control the corporation • Make all major decisions Duties of Corporate Role Payers

13. Advantages • Owners do not have to devote time to make money. • Stockholders have limited liability; they only lose what they put in. • Individuals trained in specific areas make decisions. Disadvantages • Decisions are slow. Interest of the board may differ from the stockholders. • Double taxation. Govt. taxes corporate profit then individual shares. • Stockholders have little or no say in how business is run. Corporations

14. Stock: Individual ownership in a corporation. Shareholder receives voting rights and dividends. • Bond: Promise by a corporation to pay a stated amount of interest over a period of time. Stocks and Bonds

15. Franchise – sell the name & structure of a business • Help train employees & set up the business • Franchisee – pays a start up fee & annual fee • Non – Profit – Making a profit is not the main purpose of the business • Cooperative – individual businesses that work together to benefit all members • Producer – Ex: Farmer’s Market • Consumer – Ex: PCC Natural Markets, REI • Service – Ex: Credit Unions, Utility companies Other Types of Businesses

16. Corporations sell stock to raise financial capital • People buy stock to make money • Dividends – a share of a corporation’s profits • Capital Gain – when stock is sold for more than it originally cost – Rule: Buy low, sell high Stocks

17. Stock Indexes • Statistical measures that track stock prices over time • The ticker • Ex: Dow Jones Industrial Average (DJIA) or Standard & Poor’s (S&P) • Stock Exchanges • Stock market – where stock is bought & sold • Ex: NYSE – largest & most prestigious • Others: American Stock Exchange, Chicago Mercantile Exchange, Electronic – NASDAQ • Changes in stock prices are based on market forces of supply & demand Stocks

18. Bull Market • Investors expect growth, profits high & unemployment low • Prices tend to rise • Bear Market • Investors are pessimistic, profits drop & unemployment rises • Prices fall • Changes to Stock Prices • Change in profits • Rumors (externalities) • News • Stockbroker – person who buys & sells stock Stocks

19. Role of Business Chapter 22.3

20. 1. Responsibilities to Consumers • 2. Responsibilities to Owners • 3. Responsibilities to Employees • 4. Responsibilities to the Community Roles of Business

21. Responsibilities to Consumers Sell products that are safe Products should work as promised Be truthful in advertising Treat all customers fairly

22. To protect stockholders – to do this they - • Reveal – making public important financial information • Transparency Responsibilities to Owners

23. Provide a safe workplace • Treat all workers fairly and without discrimination • * Basis of race, religion, color, gender, age, or disability Responsibilities to Employees

24. Responsibilities to the Community Social responsibility – obligation to pursue goals that benefit society as well as themselves. ex – charitable gifts, national volunteering, assisting disaster victims through relief agencies.

25. Think about a personal experience in which a product you purchased was flawed? What did you do? Did the business try to fix the problem?

26. Business Cycle

27. The Business Cycle (AKA The Economic Rollercoaster) • The ups and downs of the economy • Alternating periods of growth & decline The Business Cycle

28. Prosperity(Expansion)Boom Economy is improving Economic activity peaks Business activity is increasing Businesses work at full capacity Businesses hire more Stores sell at record workers amounts Consumers buy more *Peak: High point of boom DeclineRecession Economy slows downLowest period for production Production is cut downHigh unemployment Workers are laid off Low consumer spending *Trough: Low point of recession Depression: Severe recession 4 Economic Phases

29. Peak Trough Boom Business Cycle Expansion/ Prosperity Decline/ Recession Recovery/ Prosperity Recession

30. Business Cycle

31. Boom • Trough • Expansion • Peak What is the highest point in the business cycle?

32. The way the government taxes and spends money. • In a recession: • The government spends more money on public works projects in order to provide jobs. This keeps companies running and workers employed. • Provides money to people and increases demand. Producers will then increase supply. • Tax cuts: Gives people more money to spend. • The government will control peaks by increasing taxes. Fiscal Policy

33. The way the government regulates the amount of money in circulation. Accomplished through raising or decreasing interest rates. The Federal Reserve (FED) is in control of monetary policy. • There are 12 district banks in the Federal Reserve. Monetary Policy

34. A decline in the value on money. • Purchasing power: Amount a dollar can buy. • Inflation is measured by the Consumer Price Index and the Implicit GDP price deflator. Inflation

35. Change in price over time of a specific group of goods and services the average household uses. • Each year is compared to the average of 1982-1984. This makes the base year. • This tells us the change in the standard of living. Consumer Price Index(CPI)

36. Takes inflation away for year. • The base year used for comparisons is 1987. Implicit GDP Price Deflator

37. The total dollar value of all final goods and services produced and sold in the nation during a single year. • Value is always expressed in terms of the dollar. • Final means only finished goods. • Only new items are counted. Anything bought used is not counted. Gross Domestic Product

38. Consumer Goods: Goods or services bought by consumers for direct use. • Business Goods: Business purchase of tools, machines, and buildings used to produce other goods. • Government Goods: Anything bought by federal, state, and local governments. • Export: Anything sold to other countries. • Import: Anything bought from other countries. • Net Exports: The difference in what the nation buys and sells with other countries. GDP Categories

39. Loose Money • Easy to borrow • Consumers buy more • Business Expansion • Employment increases • Spending increases This can lead to inflation • Tight Money • Difficult to borrow • Consumers buy less • No business expansion • Unemployment increases • Production decreases This can lead to a recession Loose and Tight Money

40. The way banks create money. • Discount Rate: Prime rate that banks can borrow money from the FED. • Reserve Requirements: Percentage of deposits that banks must hold. • Banks are free to loan out money that is not on reserve leading to expansion. Fractional Reserve Banking

41. http://www.learner.org/courses/amerhistory/units/18/video/ Struggles in the Economy

42. The depression begins in 1929. Black Tuesday, October 29, 1929 • By 1933, salaries decreased by 40% and hourly wages by 60% compared to 1929 levels. • The average family income fell from $2,300 to $1,600. • 1930: 4 million Americans were unemployed. By 1933 the number tripled. • Bank runs – People tried to get all their cash out of banks, banks ran out of money • Many Americans marked this as the end of capitalism. Communists and Socialists fought with each other leading to the decline of this movement. Great Depression

43. Soup Kitchen

47. Hooverville – Names of shanties (homeless towns) during the Depression (President Hoover was president

48. FDR’s plan to end the depression. First had to restore faith in banks. • Began “fireside chats” insuring Americans the situation would improve. • Hundred Days: March 9-June 16, 1933. Congress passed 15 bills. Most were written by FDR. New Deal

49. Glass-Steagall Act (1933): Banks could not invest in the stock market. Created the FDIC to insure deposits. • Federal Securities Act (1933): No stock market fraud. Financial Reform

50. First Fireside Chat FDR’s Fireside Chat