Business Organizations Ch. 3 Economics Mr. Bennett

Sole Proprietorship or Proprietorship Business owned & run by one person who has the rights to all profits & unlimited liability for all debts of the business. Unlimited liability means that the owner is personally responsible for all loses & debts of the business  72% of all businesses in America (2009) Most common type of business

Proprietorships Advantages Disadvantages Easy to start Flexibility of Management Profits stay with owner Simpler & Lower Taxes Pride of Ownership Easy Exit Unlimited liability Difficult to raise money Size & Efficiency Limited Skills Attracting Qualified Employees Limited Life

Partnerships 9% of businesses in America (2009) Business owned & operated by 2 or more people. General Partnership: All partners share the responsibilities & debts Limited Partnership: Form of partnership where 1 or more partners do NOT actively run the business, & have limited responsibility of all debts. 9% of businesses in America (2009)

Partnerships Advantages Disadvantages Easy to start Ease of Management No special (extra) taxes Not as difficult to raise $$ Larger in size, thus more efficient (normally) Easier to attract top talent Unlimited liability between partners If one partner causes the firm to suffer a huge loss, each partner is fully and personally responsible for the loss. Limited Life If one partner dies or leaves the partnership the partnership is dissolved and a new one must be created. Conflicts & Disagreements Many times one partner cannot work with the other.

Corporations Forming a Corporation: Form of business that is recognized by law as a separate legal entity from its owners. Forming a Corporation: Articles of Incorporation – is a written application to the state requesting permission to form a corporation. Charter – is the legal authorization to organize a business as a corporation issued by the state.

Stock & Shareholders (Corporation) Stock – certificate of ownership in a corporation. Shareholders (owners of stock) own a piece of the company. If the company sells 100 shares of stock and you own 1 share then you own 1% of the company. Common Stock – most frequently used form of corporate ownership, with 1 vote per share for stockholders. Preferred Stock – form of corporate ownership without a vote, in which stockholders get their investments back before common stockholders. Used to help finance a corporation, no ownership rights!

Dividends A check that transfers a portion of the company’s profits (after taxes) to the stockholders, usually quarterly. Not all companies pay dividends on common stock! Dividends are double taxed. First, they are taxed on the corporate level. Then, they are taxed on the personal level (stockholders).

Corporate Structure pg. 68 Stockholders vote / elect a Board of Directors The Board of directors hire the officers (CEO, CFO, etc…) & give them directions of how they want the business run. The officers hire the staff & manage the day to day operation of the business.

Corporations Advantages Disadvantages Easy to raise money Stocks, Bonds, Loans… Limited liability to Owners Specialized Management Unlimited life Easy to transfer Ownership Difficult and somewhat expensive to start…$$ Owners (shareholders) have little say in how the company is run Double taxation Government Regulations

Mergers A Merger is a combination of 2 or more businesses to form a single firm. Reasons Why: Help a firm grow faster Eliminate competition Help a firm become more efficient Horizontal Merger: Combination of 2 or more firms producing the same kind of product. Ex: JP Morgan & Chase Manhattan merge to form JP Morgan Chase Vertical Merger: Combination of firms involved in different stages of manufacturing, or marketing. Ex: Pencil company buys a forest to lower cost of making pencils

Textbook activity Open to page 76 Read Conglomerates & Multinationals Add these terms to your notes or the back page of the Chapter 3 packet Make sure you are able to differentiate between the two Ask a classmate if you don’t get the difference I’ll help if y’all still don’t get it

Non-Profit Organization (pg. 79-81) Economic organization that operates like a business but does NOT seek financial gain. Employees still get paid, but the business doesn’t collect profits Instead, they put their money towards their community or organization Red Cross, AMA, ABA, Wounded Warrior Community Organizations (Schools, Churches, Hospitals, etc.) Cooperatives “Co-op” (Credit Union) Labor Unions (NEA)

Financial terms you need to know Bond – formal contract to repay borrowed money (principle) with interest. Principle – amount borrowed when getting a loan or issuing a bond. Interest – payment made for the use of borrowed money. So, if you borrow $1000 from your parents & promise to pay them back interest of 10%... $1000 is the principle $100 would be the interest

Last part of the Chapter Please read pg. 82-83 Know the Role of Government in “helping” to make sure the economy runs smoothly Direct vs. Indirect Seriously, read this…questions on the test

Using Credit Responsibly #16 Isaac inferred that credit cards are readily available / easy to obtain for college students, but there may be some hidden agenda on the bank’s part (or a catch) The way he will be successful is by treating his CC as if it were cash. He will only use his CC when he has the money to pay for the purchase in full Opinion answer – I’d say yes & no. Yes, his confidence is founded b/c you have to learn to use them wisely sometime. But also no b/c there are always hidden traps to charge consumers. PayPal is an online (purchase) payment system As a parent he has taught his son about CCs b/c he’s ambivalent towards consumer credit & CC’s

Student Loans & the Credit Crunch #10 Students are borrowing more to keep pace with the rising spiral(ing) cost of college tuition They could drop to zero b/c the program says payment is based on 15% of the borrower’s discretionary income & she has no discretionary income making $15-30k a year The two federal programs are: Public Service Loan Forgiveness and Income based repayment The incentive for her to take a federal job is that she could become eligible for the Public Service Loan Forgiveness program. The students who aren’t covered under those 2 programs (#3) are students that took out private loans.