What is Private Enterprise?
Private enterprise is defined as a business or industry that is managed by independent companies or private individuals rather than by the state. To participate in a free enterprise system, it is necessary to have entrepreneurs, consumers, a market, and a promoter.
The entrepreneur is the “risk taker.” The individual can make his or her own decisions about what to produce, sell, invent, etc. He or she is the one that comes up with a product, or an idea for a better product than is currently available in the market. They may even find a better way to shop for a product (Amazon) or deliver a product (FedEx). The entrepreneur is the one that is willing to risk failure while trying to gain a position in the market place.
If successful, the entrepreneur will be rewarded with monetary success, and the market will benefit from a new or better product than one that is currently in the store. In fact, more products of better quality benefit the consumer as prices will generally drop due to more competition in the market.
A free enterprise system also requires a government that is willing to limit its intervention in the economy. In the United States, the government plays various roles such as regulator, protector, provider, consumer, and promoter. As a regulator, the government is charged with ensuring competition in the market. It oversees businesses and its own agencies to make sure that industries are playing by certain rules. The role of protector the government enforces laws to prevent businesses from abusing or taking advantage of consumers. The government is also a provider of certain goods and services such as national defense, roads, public education, hospitals, libraries, and public welfare. In addition, the government is a consumer of goods. It purchases goods and services from the private sector such as office goods, buildings, and automobiles, to run its offices and operate daily. Finally, this government is a promoter of national goals.
The president, Congress, and administration of federal programs work to promote the goals of this economic system. By allowing the individual the opportunity to compete in the market while remaining on the sidelines, the government has promoted the concept of free enterprise.
When beginning a business, you must decide what form of business to establish. The most common forms of business are the sole proprietorship, partnership, corporation, and S corporation. A Limited Liability Company (LLC) is a relatively new business structure allowed by state statute. The larger the profit, the more taxes for which you will be responsible.
The government requires income, or revenue, to operate. Business and corporations generate that income. The type of business determines the type of taxes. Employers usually pay federal, state, and local taxes.
Business owners are required to pay taxes on their business. For example, a business is charged an income tax just like an individual. A business must also pay employment tax, unemployment compensation, social security insurance, and excise tax. Some state government also charge payroll taxes.
Of course, the consumer also absorbs the cost of the taxes that the business pays. This cost is added to the cost of the product. These taxes are used by the business to improve the safety of a product, to reduce environmental harm, and to expand services.
Although the government provides guidelines in the form of regulations, free enterprise allows the entrepreneur to make the decision on production.
Video: Crash Course Economics: Taxes
1. What is a free enterprise?
2. What are the roles in a free enterprise?
3. How are businesses taxed?