‫Welcome everybody.
‫Let's begin our lecture by understanding the landscape of business.
‫What do we need to know.
‫First what is the purpose of business business sell products or provide services.
‫Examples of products sold are the household items that we have and we consume services would be education
‫consulting legal accounting and many other services that we so require.
‫Why do businesses engage in these types of activities for primarily one very good reason to generate
‫a profit.
‫And how is profit generated profit is generated by subtracting the expenses that the business incurred
‫in producing this products or providing the services from the revenues that they earn from their customers
‫and their clients.
‫Now let's talk about the various types of businesses.
‫Let's start with the service type of a business.
‫Let's say for instance you decided to take some rest and recreation some downtime and you book yourself
‫a weekend stay at your favorite resort.
‫What does that mean.
‫Does that mean that you just purchased yourself a hotel.
‫No what you simply did is why acquire the services of this hotel for rest and recreation and Hotel and
‫Lodging next merchandising.
‫The many stories that we go to ground are online.
‫What do they do.
‫The business managers and owners procured these products so that they can turn around and sell it to
‫their consumers.
‫So in short it they buy the products and they turnaround and sell the products to their customers.
‫Third is manufacturing looking at my slides you see we have an assembly line.
‫Well how does manufacturing work.
‫Very simply you combine labor materials machinery science technology and you convert all this raw materials
‫into finished products like for instance the automobile industry.
‫What we do is we combine all those that I mentioned earlier into finished products being automobiles
‫.
‫So these are the different types of businesses.
‫Before we get started with business we need to understand the form of business entity they decide to
‫take on.
‫And let me give you the most frequently ones that are used.
‫one is proprietorship proprietorship it's typically referred to as sole proprietorship because number
‫one it is owned by one individual forming a sole proprietorship is quite easy and relatively affordable
‫.
‫However the downside is that the resources are rather limited limited to who it's limited to the one
‫person that owns and operates the business.
‫There is also the exposure for the owner of what's referred to as limited liability.
‫Let's say for instance the business OS X amount of dollars and the business does not have any money
‫to pay for this.
‫The creditor will go after the owner of the business.
‫In order for this obligation to be satisfied.
‫So that is a risk that is a disadvantage for proprietorship.
‫As far as taxation of income is concerned here in the United States the income of the sole proprietorship
‫is passed through to the individual that owns the business and he then turns around and reports it in
‫his personal income tax return.
‫Next let's talk about a partnership with a partnership this type of an entity requires atleast.
‫Well you guessed it.
‫It takes at least two individuals because it takes two to at least have a partnership.
‫Right.
‫So what are the advantages of the partnership with the partnership You can combine the resources of
‫the partners and like the sole proprietorship.
‫Like I mentioned earlier as far as reliability is concerned the liability of the organization the partnership
‫itself extends to the owners there is what's referred to as mutual agency and what that simply means
‫is that if you and I are partners you yourself can bind the organization on my behalf and vice versa
‫.
‫And another potential downside of this is that if there is let's say for instance a possibility of me
‫skipping town and we have some obligations what's going to happen is that you the remaining partner
‫will be responsible for the obligation not just to the extent of your contribution to the business but
‫for the entire amount.
‫So these are the things that you need to think about.
‫And as far as income taxation is concerned it enjoys similar benefits of a sole proprietorship where
‫the partnership does not really pay taxes under income.
‫But instead the income is distributed according to the partnership agreement of the partners to the
‫individuals themselves And they will include that in their personal income tax return and that's how
‫income taxes are paid With a partnership a very common form of business entity that we see around this
‫what's referred to as a corporation with a corporation there are publicly held and privately held corporations
‫the publicly held corporations we see plenty of them the ones that are publicly traded.
‫There are also privately owned corporations in our community.
‫One distinguishing factor of a corporation is that the ownership is purchased through shares of stock
‫naturally with more individuals through shares of stock.
‫There is more access to capital for this type of an organization.
‫It opens up the possibility
‫another benefit this is the legal liability of the shareholder typically the liability of the shareholder
‫is only to the extent of the capital contribution that he made into the organization.
‫Another advantage of a corporation is that you can easily sell your share of stock just as easily that
‫we can purchase it right.
‫You can easily sell it to one downside On the other hand is that Let's assume for instance we are a
‫shareholder of ABC Inc.
‫ABC Inc.
‫At the end of the year whatever its net income is we'll have to pay taxes on its income now
‫In order for them ABC inc. to satisfy its customers and rather not customers but their shareholders
‫they then turn around and provide you with return of the investment.
‫Otherwise known as dividends in the dividend that's distributed to you.
‫It is going to be subject to tax Again and you personally will have to pay taxes on this.
‫What that simply means is that with the corporation you may be subject to double or multiple taxation
‫.
‫So there you have it.
‫These are the beginnings of understanding business.
‫I look forward to seeing you in our next lecture.