Financial Concepts
Lesson Objectives
• Identify and describe all parts of the business life cycle
• Describe the concept of capital and discuss how businesses
raise capital and why they need it
• Compare and contrast different forms of business ownership
Key Vocabulary Terms
• Bond
• Business Life Cycle
• Buyout
• Capital
• Cessation of
operation
• Corporation
• Debt
• Entrepreneur
• Fixed income security
• Intangible
• Intellectual Property
• Interest
• Liability
• Limited Liability
Company
• Liquidation
Key Vocabulary
• Marketplace
• Market share
• Partnership
• Principal
• Prototype
• Sole Proprietorship
• Stock
• Strategy
• Tangible
• Valuation
• Venture Capital Firm
Introduction to ECPak
• You are in a very special position. As advanced finance
students, you have been asked for help by Eduardo Cisneros,
entrepreneur of ECPak Company. In fact, he has written a
memo to you explaining the specifics of his request.
Introduction to ECPak
• Download- Reading: Memo from Eduardo Cisneros
• What kinds of things do you think you need to know in order to
help out Eduardo and his company?
• Write your answers on the board after you collaborate with your
group.
Business Life Cycle
Your life cycle
• Where would you place yourself on the diagram? Where were
you when you were born? Where are your grandparents?
Business life Cycle
Predict what happens to business in each part of the cycle.
Name one company that you think is in each part of the cycle.
Business Life Cycle
Start-up Growth
Maturity Decline
Cessatio
n
Business Life Cycle
• Download- Reading: Business Life Cycle
• Correct any incorrect predictions about the Business Life Cycle
Business Life Cycle of ECPak
• Download- Reading: ECPak
• Label each section of the article with the stage of the business
cycle it describes
• Be able to defend your predictions with facts and conclusions
from the reading
Business Life Cycle
• What is the name of one company that you admire?
• Predict what stage the company is at in the business life cycle.
• Give one reason to support your prediction.
Lesson Objectives
• Identify and describe all parts of the business life cycle
• Describe the concept of capital and discuss how businesses
raise capital and why they need it
• Compare and contrast different forms of business ownership
Introduction to Capital
• Define- Capital (in finance terms)
• Download- Anticipation Guide: An Introduction to Capital
• Download- Reading: An Introduction to Capital
• While reading please complete the anticipation guide
Lesson Objectives
• Identify and describe all parts of the business life cycle
• Describe the concept of capital and discuss how businesses
raise capital and why they need it
• Compare and contrast different forms of business ownership
Forms of Business Ownership
•
•
•
•
Sole proprietorship
Partnership
Corporation
Limited liability company
• List defining characteristics of each in a table for reference
• Download- Note-Taking Guide: Legal Forms of Business
Ownership
AOF
Applied Finance
Unit 1, Lesson 2
Legal Forms of Business Ownership
Copyright © 2007–2012 National Academy Foundation. All rights reserved.
Sole proprietorship: Going it alone
Characteristics:
• Typical size: very small
• A single individual owns and
operates the business
• The sole proprietor is the
owner of a sole proprietorship
• The sole proprietorship can
hire employees, but the owner
cannot be an employee
• Typical examples are small
shopkeepers, artists,
craftspeople, carpenters,
consultants, and writers
A potter is likely to
be a sole proprietor.
Sole proprietorship advantages and
disadvantages
Advantages:
• Simple and inexpensive
to create and operate
• Least regulated of all
business forms
• All profits are reported
on the owner’s personal
income tax return
Disadvantages:
• The owner is personally
responsible for all
actions of the business
• The owner is personally
liable for all business
debts
General partnership: Sharing the
responsibility
Characteristics:
• Typical size: from two
individuals to a large firm
with many partners
• The partners run the
business but may not be
employees of it
• There is slightly more
regulation than for a sole
proprietorship
• The owners sign a written
partnership agreement
about how to run the
business
What options might
someone have if he no
longer wanted to work with
his partners?
General partnership advantages and disadvantages
Advantages:
• Simple and
inexpensive to create
and operate
• All profits are taxed as
personal income to the
partners
Would you become business
partners with a friend?
What qualities would you want
your partner to have?
Disadvantages:
• All partners are
responsible for any
actions taken in the
name of the business
by all other partners
• All business debts are
the personal
responsibility of the
partners
Corporation: Putting up a wall
Characteristics:
• Typical size: ranges from
one or two stockholders
to millions of them
• The corporation can hire
employees, which may
include the owners
• In the eyes of the law, a
corporation is treated like
an individual:
• It can own property
• It can be sued
• It must file a tax
return
Forming a corporation is like
putting up a wall between
the business and its owners’
personal assets.
Why would the law give
corporations some of the
same rights as individuals?
Corporation advantages and
disadvantages
Advantages:
• Corporation owners are
not responsible for the
actions taken by the
business
• Debts are not the
responsibility of the
owners (limited
liability)
• The business can sell
shares (stock) in the
business to the public
in order to raise capital
Disadvantages:
• Legally complex to start
and operate
• One of the two most
regulated business forms
(the limited liability
company is the other)
• Profits are taxed twice—
once as corporation
income and again as
investor income
Limited liability company (LLC): Bridging the gap
Characteristics:
• Typical size: small to midsized businesses
• LLCs combine some
aspects of a partnership
and some aspects of a
corporation
• Like a corporation, an LLC
is treated as an individual
for purposes of ownership
and legal standing, but it
is not taxed at the higher
corporate rates
LLC advantages and disadvantages
Advantages:
• LLC partners have more
flexibility to allocate
profits and losses
• Debts are not the
responsibility of the
partners (limited
liability)
• An LLC can choose to be
taxed as the property of
the owners (like a
partnership) or an
individual (like a
corporation)
Disadvantages:
• Like a corporation, an LLC
is governed by complex
laws
• The owners of an LLC
normally can’t be
employees
• When a partner dies, the
LLC is dissolved
Responding to changing conditions
• Whichever legal form you
choose at the start of
your business, it doesn’t
have to be permanent
• This possibility should be
part of your long-range
business planning and
strategy
What conditions might raise the
risk of personal liability?
Forms of Business Ownership
• What type of ownership does ECPak Company fall under?
• Why?
Business Ownership
• If you were to start a business, what type of ownership would
you choose and why?
• Sole Proprietors get in a group
• Partners get in a group
• Corporations get in a group
Business Ownership
• Why would you like your business to be organized in this
fashion?
• Download- Worksheet: Pros and Cons of the Forms of
Business Ownership
Business Ownership
• Research and evaluate a specific form of business ownership
and then write a summary that addresses its specific
advantages and disadvantages
Lesson Objectives
• Identify and describe all parts of the business life cycle
• Describe the concept of capital and discuss how businesses
raise capital and why they need it
• Compare and contrast different forms of business ownership
Lesson Take Away’s
• The business life cycle reminds me of…
• Capital refers to…
• One thing I realized about business ownership is…
Cross-Curricular Integration
• Language Arts: Research memo writing as a genre.
• Research a particular format of a memo and understand its
purpose
• Next, pretend that you are a manager of a large corporation
and you need to write a memo to your employees about a
specific policy change.
• Draft a memo explaining the situation and what action is
needed to correct it.