Chapter 7
The Business of Free Enterprise
Anticipatory Set
 Have you ever heard the phrase you
don’t have to reinvent the wheel? What
does it mean to you?
Objective
 Our objective today is Learn what an
Entrepreneur is and what types of
businesses exist.
Entrepreneur
 Someone who not only starts their own
business, but invents or introduces a new
product or idea.
 A) they are usually a risk taker
 B) Examples
 Henry Ford
 Ray Krock
 Bill gates
Who becomes an
Entrepreneur?
 A) Improve a product or process by
finding new ways to sell or use a product
(kitty litter) Ed Lowe
 B) Unexpected opportunities (Post-itNote)
 C) Spotting New Markets (Kinko’s Fed
Ex)
 D) Start at an early age (babysitting)
 E) Identifying population trends
Small Business
 Most entrepreneurs start with a small
business
 A small business is a business earning
3.5 million or less and employing no
more than 500 people.
 But they do have some key
advantages…
Advantages
 1) ability to satisfy small markets
 2) their ability to adapt to change
 3) imagination and flexibility are
welcomed
 4) you are the boss
 5) job security
Disadvantages
 **Most fail within a few weeks of getting
started
 1) Poor Management
 Most people are unprepared for the heavy
workload
2) Inadequate finances
 A) don’t have enough money when getting
started
 1. insufficient capital, 2) slow sales, 3) heavy
debt
Day two
Where To Start
 Anticipatory set:
 If you had to start a business tomorrow
what would it be?
Where to Start
 Objective: today we are going to talk
about how small businesses get started
and how they contrast with other types of
businesses
Where to Start
 You can go to Small Business Administration
 They provide counseling, literature, advice
 There are entrepreneurial programs offered by
colleges
 You can get on the job training (getting paid while
you learn)Steamfitters Local Union 420 Website Apprenticeship
 You can learn from successful family members
Forms of Business
Organizations
 1) Sole proprietors- When 1 Person owns
& operates a business
 A. most common type of business (73% of
all businesses)
 B. Oldest form of business
 C. Most simple to form (fewest government
restrictions)
Advantages of Sole
Proprietors





1. You are your own boss
2. Keep all of the profits
3. Tax advantage over corporations
4. Make all the decisions
5. You can establish a personal
relationship with your customers
Disadvantages





Unlimited Liability
Total business responsibilities
One source of capital
Limited life
Tough to achieve specialization
Partnerships
 1. When 2 or more people own a
business (roughly 7%)
 2. Two types of partners
 A. Active partner-contributes both time &
money
 B. Silent partner-contributes money only
Advantages
 1. Two or more sources of capital &
better fund raising ability
 2. Share the business responsibilities
 3. Easy to organize with a better chance
to specialize
Disadvantages



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1. Unlimited liability
2. Limited life
3. Dishonest partner
4. You are responsible for your partners
mistakes
 5. Must split the profits
 6. Finances are still very limited
Student Input
 Answer the questions on page 106 and
111 in your JA Economics textbook
Corporations
 A corporation is an artificial being
permitted by Government to carry out a
business
 A corporate charter-A written grant of
authority from the Government giving you
permission to exist.
 state charter is easier to obtain
 Federal charter is more difficult and can be
an expensive process
Owners-Stockholders
 Paid dividends-how the corporate profits are
shared
 Proxy-written permission transferring your
voting rights
 This is the most dominant type of business in
modern U.S. capitalism
 Makes up 20%of all businesses
 Generates 90% of all business sales & revenue
Advantages
 Most effective way to raise capital
 Sell new stocks, bonds, lenders, dispose of
holdings
 *Usually easier to access bank credit
Advantages
 *Limited Liability owners risk only what they
paid for stock
 Easier to expand in size and scope
 Mass production & specialization
 A life separate from its owners (legally
immortal)
Disadvantages
 Very, Very had to establish
 Expensive and time consuming
 Lots of “Red-Tape” all of the papers and
documents that must be completed
before legally beginning
 Double Taxation
 Corporate profits are taxed (usually 35%)
 Stockholders are taxed on dividends
Separation of Ownership
& Business
 Corporate officers can avoid
responsibility for questionable business
decisions
 Officers can vote themselves large pay
raises & bonuses
 Most shareholders do not exercise voting
rights