Economics – Chapter 3, Section 1 Forms of Business Organizations

1. Economics – Chapter 3, Section 1Forms of Business Organizations Sole Proprietorships A business owned and run by one person. Smallest type of business organization in size, yet the most numerous and profitable.

2. Economics – Chapter 3, Section 1Forms of Business Organizations Advantages of Sole Proprietorships Ease of start-ups. Ease of management. Owner gets all the profits. Business itself pays no income taxes. Taxes paid only on the owner’s personal income. Psychological satisfaction of owning one’s business Ease of closing the business.

3. Economics – Chapter 3, Section 1Forms of Business Organizations Disadvantages of Sole Proprietorships Owner has unlimited liability. Hard to raise financial capital. May not be able to hire enough personnel or stock enough inventory to operate efficiently. May have limited managerial experience Hard to attract qualified employees. Business has limited life and legally stops when the owner dies or sells the business.

4. Economics – Chapter 3, Section 1Forms of Business Organizations Partnerships A business jointly owned by two or more persons. It is the least numerous among business organizations Second smallest proportion of sales and net income.

5. Economics – Chapter 3, Section 1Forms of Business Organizations General partnerships all partners are involved in the management and finances. Limited partnership at least one partner is not involved in management. Usually helped finance the business. Articles of Partnership documents spell out how the partners divide up the profits or losses.

6. Economics – Chapter 3, Section 1Forms of Business Organizations Advantages of Partnerships Ease of start-up Ease of management No special taxes on a partnership Easier to raise capital through bank loans or new partner Larger size aids efficient operations Easier to attract skilled employees

7. Economics – Chapter 3, Section 1Forms of Business Organizations Disadvantages of Partnerships Partners are responsible for the acts of each partner, except in a limited partnership where the limits are spelled out Limited life - partnerships ends if a partner leaves Potential for conflicts between partners.

8. Economics – Chapter 3, Section 1Forms of Business Organizations Corporations Business organization recognized by law as a separate legal entity with all of the rights of an individual. Corporations receive a charter, or government permissions to create a corporation, which includes details about stock ownership. Investors who buy stock in a corporation become owners of the firm.

9. Economics – Chapter 3, Section 1Forms of Business Organizations Corporations Shareholders - Board of Directors - CEO or President - Management Team Common Stock Preferred Stock Proxy Dividends

10. Economics – Chapter 3, Section 1Forms of Business Organizations Advantages of Corporations Ease of raising capital. Professionals may run the firm instead of the owners (shareholders). Owners have limited liability. Business’s life is unlimited. Easy to transfer ownership. Corporations are responsible for the Largest portion of sales in the US.

11. Economics – Chapter 3, Section 1Forms of Business Organizations Disadvantages of Corporations A charter is expensive. Ownership and management are separated so shareholders have little say in running the business. Corporate income is taxed twice. Subject to government regulation.

12. Economics – Chapter 3, Section 1Forms of Business Organizations Proprietorships, Partnerships and Corporations All up in Yo Business Types and Features of Business Entities

13. Economics – Chapter 3, Section 2Business Growth and Expansion Growth Through Reinvestment Business revenue can be used to invest in factories, machinery, or new technologies. Before reinvesting, a business must estimate its cash flow.

14. Economics – Chapter 3, Section 2Business Growth and Expansion The business first records its total sales and then subtracts all expenses, taxes, and depreciation. The results is the business’ net income. Sales REVENUE – EXPENSES = PROFIT

15. Economics – Chapter 3, Section 2Business Growth and Expansion Growth Through Mergers Merger: a combination of two or more businesses into one business. One business gives up its separate legal entity. A company may merge with another to: grow faster become more efficient acquire or deliver a better product eliminate a rival change its image

16. Economics – Chapter 3, Section 2Business Growth and Expansion • A vertical merger is the joining of firms involved in different stages of manufacturing or marketing. A horizontal merger is the joining of firms that make the same product.

17. Economics – Chapter 3, Section 2Business Growth and Expansion A conglomerate is composed of four or more businesses, each making unrelated products, none of which is responsible for a majority of its sales. Amultinational is a corporation with manufacturing and service operations in several countries, which are subjected to each nation’s business regulations.

18. Economics – Chapter 3, Section 3 Community and Civic Organizations A nonprofit organization is in business to promote its members’ collective interests, not to seek financial gain. Many nonprofit organizations incorporate to take advantage of a corporation’s unlimited life and limited liability.

19. Economics – Chapter 3, Section 3 If the nonprofit organization has money after its expenses are paid, its board of directors may apply the surplus to other projects that further the organization’s mission.

20. Economics – Chapter 3, Section 3 Cooperatives A cooperative is voluntary association of people who carry on all economic activity that benefits its members. Consumer cooperatives buy food and other necessities in bulk. Members donate time to the co-op, and members pay lower prices for goods.

21. Economics – Chapter 3, Section 3 Service cooperatives, such as credit unions, offer services to its members at lower rates. Producer cooperatives help members, such as farmers, promote or sell their products.

22. Economics – Chapter 3, Section 3 Labor, Professional, and Business Organizations Labor unions represent workers’ interests and negotiate with management through collective bargaining, which the process by which wages, hours, rules, and working conditions are negotiated and agreed upon by a union with an employer for all the employees collectively whom it represents.

23. Economics – Chapter 3, Section 3 Professional associations set standards for those in the profession and influence gov’t policies on issues concerning Business associations are industries, or trade associations, that represent specific kinds of businesses. Example: the Better Business Bureau = help protect the consumer.

24. Economics – Chapter 3, Section 3 Government Gov’t plays a direct role in the economy when its agencies produce and distribute goods and services to consumers. The TVA (electricity) The US Postal Service (mail delivery).

25. Economics – Chapter 3, Section 3 Gov’t corporations have boards of directors, but Congress’s money, rather than investors’ money, support their work. Gov’t plays an indirect role when it regulates public utilities or when it grants money to people, such asin the form of Social Security and student financial aid.