Free Enterprise System Business Organization Our Economic System

Free Enterprise System & Business Organization Our Economic System Forms of Business Ownership

Free Enterprise System • Describes the Economic System used in the United States – Also Referred to as: • Consumer Economy • Market Economy • Profit System • Capitalism

Free Enterprise System • Free Enterprise System An economic system that allows businesses to manage and operate without any government interference.

Free Enterprise System Elements 1. Private Ownership – Business is owned and operated by Individuals or Corporations. -- Very little government control. 2. Individual Control of Productive Resources – Land, Labor, and Equipment • Used to Produce and Provide Goods and Services.

Free Enterprise System Elements 3. Free Economic Market – People have the right to decide how and where they spend, save, and invest their money. 4. Profit Motive – The main reason for operating a business begins with the desire and motivation of earning a profit…. (To Make $$$!!!)

Supply and Demand Supply the amount of products and services available for sale. Demand the amount of products and services consumers want to buy. • Businesses produce “Supply” on the basis of consumer “Demand. ” • Low Supply and High Demand = High Price • High Supply and Low Demand = Low Price

Competition • Competition two or more businesses striving for the same customer or market in order to make a profit. – Encourages businesses to produce quality goods and services at lower prices than other businesses. What is the difference between direct and indirect competition? What are some examples of each?

Limited Government Involvement • Federal, state and local governments establish and enforce laws and policies. – To keep the Free Enterprise System FAIR – To promote economic growth and stability – To protect consumers from unsafe and unfair business practices • Prevention of Monopolies – Monopoly a single company that controls the entire supply of a product or service. – Prevents Competition How are monopolies unfair to consumers?

Business Ownership • All businesses operate on the same basic principle: • To Earn a Profit - $$$ » No Profit = No More Business • There are 3 forms of Business Ownership: Proprietorship Partnership Corporation

Proprietorship • • Business that has only ONE owner. Simplest Form of Business Organization. • • Why is a Proprietorship the Simplest Form? ? The One Owner is Responsible for: 1. All of the Start Up Capital – $$$ to establish and operate the business. 2. All Profits 3. All Debts and Losses.

Proprietors are Entrepreneurs • A person who starts a new business and takes on the risks, responsibilities, and potential rewards of operating and expanding the business. Qualities of Entrepreneurs: Creative Risk Taker Intelligen Confident t Disciplined Determined Innovative

Advantages Sole Proprietorship Advantages/Benefits – Easiest to start up (Least Expensive) – Easiest to Dissolve (end) – Complete Control of Decision Making – Control all profits and operations

Disadvantages Sole Proprietorship Disadvantages/Costs – Unlimited Liability • Responsible for all losses – Limited Capital – Limited Size (Hard to expand business) – Limited Management

Examples of Sole Proprietorships ? ? ? • • • Contractors Electricians Plumbers Landscapers Corner Store

Partnership • 2 or more people that go into business together. • The Owners are Responsible for: • The Start Up Capital – $$ to Establish and Operate business. • Sharing Responsibilities • Sharing Profits or Losses.

Advantages Partnership Benefits – Easier to raise financial capital – Combine managerial skills/knowledge – More resources available – Limited Liability

Disadvantages Partnership Costs – Shared profits – Possible arguments or disagreements – Conflicting ideas and decisions

Examples of Partnerships ? ? ?

Corporation • Business owned by many people • Formed by selling portions or shares of a business – stocks • Stockholders – the people who buy the stock and become part owners of the business. • Public or Private

Corporation • Who are the investors in a Corporation? ? ? • How does it differ from a Proprietorship or Partnership? ? ?

Advantages Corporation Benefits • Limited liability • Greater financial capital • Unlimited life • Specialized management

Disadvantages Corporations Costs • Increased taxation (pays corporate income taxes) • Difficulty in starting • Formalities and Procedures

Examples of Corporations ? ? ?