Splash Screen

1. Splash Screen

2. Chapter Introduction Section 1: Forms of Business Organization Section 2: Business Growth and Expansion Section 3: Nonprofit Organizations Visual Summary Chapter Menu

3. You have an idea for a new product and you want to set up a company to market it. You need $5,000 to get started with production and advertising. Use what you have already learned about the factors of production to create a list of resources you will need and where to find them. Read Chapter 3 to learn about the different ways to organize a business. Chapter Intro 1

4. 1. The profit motive acts as an incentive for people to produce and sell goods and services. 2. Governments and institutions help participants in a market economy accomplish their financial goals. Chapter Intro 2

5. Chapter Intro-End

6. Section Preview In this section, you will learn about the advantages and disadvantages of various forms of business organization. Section 1-Preview

7. Content Vocabulary sole proprietorship proprietorship unlimited liability inventory limited life partnership general partnership limited partnership corporation charter stock stockholder shareholder dividend common stock preferred stock bond principal interest double taxation Section 1-Key Terms

8. Academic Vocabulary comprise entity Section 1-Key Terms

9. A B C What incentive is there for individuals to produce and sell goods and services? A. Low prices through competition B.Profit motive C.Private property rights Section 1

10. Sole Proprietorships Sole proprietorships are easy to start, but owners have unlimited liability. Section 1

11. Sole Proprietorships (cont.) The most common form of business organization in the U.S. is the sole proprietorshiporproprietorship. Business Organizations Section 1

12. Sole Proprietorships (cont.) Advantages • The easiest form of business to start— few requirements • Decisions do not require approval from “higher ups.” • Keep all profits • Does not pay separate business income taxes; business is not a separate entity Section 1

13. Sole Proprietorships (cont.) Advantages • Psychological factor of being own boss • Easy to get out of business Section 1

14. Sole Proprietorships (cont.) Disadvantages • Owner has unlimited liability. • Difficult to raise capital • Size and efficiency • May hire several employees to stay open • Cost of carrying minimum inventory • Often has limited managerial skills Section 1

15. Sole Proprietorships (cont.) Disadvantages • Difficult to attract qualified employees • Larger employers can offer more fringe benefits. • Limited life of business Profiles in Economics:Andrea Jung Section 1

16. A B C D Which is not considered an advantage to being a sole proprietor? A.Retains all profits B.Unlimited liability C.Quick decision making D. Business is not recognized as a separate legal entity. Section 1

17. Partnerships In a partnership, each partner fully shares responsibility for the operation of the business and all profits or losses. Section 1

18. Partnerships (cont.) A partnership has many of the same advantages and disadvantages of a sole proprietor. Partnerships are the least numerous form of business organization in the United States. Section 1

19. Partnerships (cont.) Types of partnerships • General partnership • Limited partnership Section 1

20. Partnerships (cont.) Advantages to operating a partnership • Ease of startup • Formal legal papers called articles of partnership are usually written. • Ease of management/varied expertise • Lack of special taxes • Easier to attract capital than a proprietorship Section 1

21. Partnerships (cont.) Advantages to operating a partnership • More efficient operations that come with increased size • Easier to find good employees than a proprietorship Section 1

22. Partnerships (cont.) Disadvantages to operating a partnership • In a general partnership, each partner is responsible for acts of all partners. • In a limited partnership, limited partner loses original investment. General partners must make up the rest of the loss. • Limited life • Potential for conflict between partners Section 1

23. A B In which type of partnership would you prefer to be a partner? A.General partnership B. Limited partnership Section 1

24. Corporations Corporations are one of the most important forms of business and can easily raise large amounts of financial capital. Section 1

25. Corporations (cont.) A corporation is a formal, legal entity all its own. Individuals who wish to incorporate must file with the national government and state where the business will have its headquarters. Section 1

26. Corporations (cont.) If a corporation is approved, the government issues a charterstating the purpose of the business, specifying the number of shares of stock, and other business information. Stock Ownership Section 1

27. Corporations (cont.) Selling shares of stock tostockholders, or shareholders,is a way for a corporation to raise capital. Corporations pay out dividends to shareholders when the corporations become profitable. Section 1

28. Corporations (cont.) There are two types of stock that corporations issue. • Common stock • Preferred stock Type of stock purchased determines the ownership rights of the shareholder. Section 1

29. Corporations (cont.) Advantages to a corporation structure • Ease of raising capital—sell more stock or issue bonds The amount of money borrowed on a bond is called the principal. Corporations pay intereston this borrowed money. Corporate Structure Section 1

30. Corporations (cont.) Advantages to a corporation structure • Owners have limited liability. • Directors can hire professional managers to run daily operations. • Unlimited life • Ease of transferring ownership Corporate Structure Section 1

31. Corporations (cont.) Disadvantages to a corporation structure • Detailed records need to be kept for payment of taxes. • Double taxation of corporate profits • Difficulty and expense to get a corporate charter Corporate Structure Section 1

32. Corporations (cont.) Disadvantages to a corporation structure • Owners or shareholders have little voice in business operations. • Subject to more government regulations Publicly held corporations must register with the federal Securities and Exchange Commission, established in 1934, to regulate the sale of stock. Corporate Structure Section 1

33. A B C D Some firms incorporate just to take advantage of which corporate characteristic? A.Unlimited life B. Ease of raising capital C. Limited liability D. All of the above Section 1

34. Section 1-End

35. Section Preview In this section, you will learn how businesses grow through merging with other companies or by reinvesting profits in themselves. Section 2-Preview

36. Content Vocabulary merger income statement net income depreciation cash flow horizontal merger vertical merger conglomerate multinational Academic Vocabulary internally dominant Section 2-Key Terms

37. A B C What is the best way for a company to grow? A. Invest in self B. Merge with another company C. Depends on the situation Section 2

38. Business Growth and Expansion Investing profits in new plants and equipment is one way to grow a business. A mergeris another way. Section 2

39. Growth Through Reinvestment Business owners can use their profits to update and expand their firms. Section 2

40. Growth Through Reinvestment (cont.) Financial statements are used to keep track of a business’ operations. • Income statement—shows how a business uses the revenue it receives from sales to grow through reinvestment • An income statement shows a firm’s net income. Growth Through Reinvestment Section 2

41. Growth Through Reinvestment (cont.) • Depreciation—a non-cash charge of capital goods • An increase in depreciation lowers the earnings before tax but increases cash flow. • Cash flow is the bottom line, a more comprehensive measure of profits. Growth Through Reinvestment Section 2

42. Growth Through Reinvestment (cont.) Corporations with positive cash flow may issue dividends and reinvest in new plants, equipment, or technology. Proprietors and partnerships may keep some of the cash flow as reward for risk taking in addition to reinvesting in business. Section 2

43. Growth Through Reinvestment (cont.) Reinvesting in the business increases production and generates more sales. Positive cash flow attracts investors. Section 2

44. A B C D Which of the following is included on a net income statement? A.Sales revenue B. Expenses C. Cash flow D. All of the above Section 2

45. Growth Through Mergers Mergers allow firms to quickly grow in size. Section 2

46. Growth Through Mergers (cont.) When two companies merge, one gives up its separate legal identity. The name of the new company may reflect the identities of both for public recognition, however. Section 2

47. Growth Through Mergers (cont.) Two types of mergers • Horizontal merger • Vertical merger Types of Mergers Section 2

48. Growth Through Mergers (cont.) Reasons to merge • Faster growth • Become more efficient • Better product manufacturing or delivery • Eliminate competition • Change image Section 2

49. Growth Through Mergers (cont.) A corporation may become so large through mergers and acquisitions that it turns into a conglomerate. Diversificationis the reason why some businesses become conglomerates. Isolated economic events may affect some product lines but not all of them at the same time. Conglomerate Structure Section 2

50. Growth Through Mergers (cont.) Large corporations that become international in scope are referred to as multinationals. Section 2