A. When an entrepreneur decides to create a business, they must decide on the appropriate legal form. Many options are available and each legal form its own advantages and disadvantages.
Review the advantages and disadvantages of these four legal forms of business in "Forms of Ownership" on page 155 of Introduction to Business.
B. While most businesses maintain the same form and organization throughout their existence, some businesses change their legal form of ownership (such as, from sole proprietor to corporation) or merge with, or acquire, other businesses.
Review Mergers and Acquisitions.
A. In addition to the four major forms of business ownership, the U.S. Internal Revenue Service has designated some additional types of businesses, such as limited liability companies (LLC), S-corporations, and nonprofit organizations.
Review limited liability company (LLC) in Other Types of Business Ownership.
B. Let's explore some different scenarios that apply to the four different forms of business ownership. Two differences pertain to the amount of control the owner has over the business and their amount of personal liability.
A. Once an entrepreneur has chosen an appropriate legal form for their new business, they typically create a business plan to help them choose the best structure and organization.
B. While the business plan is an excellent tool for internal planning, business owners can also use it to communicate with external stakeholders, such as a potential investor who may review the plan to see if the owner has put enough thought into all aspects of the business.
Review the purpose of the different components of a business plan components in The Business Plan.
A. Unless it has an outside funding agency, most businesses must make a profit to survive. They need to generate enough revenue to cover their expenses. A business manager needs to calculate how much product they need to sell to cover their expenses or conduct a break-even analysis.
B. Taxes, collected by local, state, and federal government entities, benefit society in ways we often fail to recognize and frequently take for granted. For example, businesses benefit from government spending when the highways, rail systems, and seaports they build allow companies to get the goods they manufacture to their customers. Local governments are responsible for creating an education system that will educate their future employees. Customers are more likely to buy products they know have been inspected for quality.
For many companies, taxes are simply a cost for doing business. However, taxes can be expensive and controversial when business owners feel their tax dollars are not being spent efficiently.
Review the role of taxes and business profitability in The Economics of Tax Reform: Lessons from the Donut Shop.
A. As we learned in Unit 1, business managers use various economic indicators to predict future economic growth. For example, small businesses play a vital role in the unemployment rate since they employ so many workers.
Review this material in The Importance of Small Business to the U.S. Economy.
B. Franchises offer business managers the opportunity to create a small business without having to incur as much risk as they might have to do when creating a business that is unsupported by an outside corporate entity.
Review franchising in "Getting a Franchise" in Starting a Business.
Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.