The Business Organization Chapter Eight
Focus of Chapter Eight Organizational / Business Structures The Nature of Economic Costs Short-Run Production and Costs Long-Run Production and Costs
The Business Sector What is a Plant? A physical establishment that functions to produce, fabricate, and distribute goods and services (mine, factory, warehouse, store).
What is a Firm and Industry? A firm is a business organization that owns and operates plants. Some firms operate only one plant, others operate many. An industry is a group of firms that produce the same or similar products, resources, or services.
Horizontal, Vertical, or Conglomerate? Horizontal firms have several plants performing the same function (Cineplex). Vertically integrated firms have many plants performing various functions in the production process. From resource extraction to sales (George Weston Ltd). Conglomerates operate in different industries (Bell).
The Legal Forms of Business Sole Proprietorship: A business owned and operated by one person (Clarke Mortgages and Financial Consulting). Partnership: A business owned and operated by two or more people (Gael Properties). Corporation: An incorporated legal entity chartered by the provincial or federal government that operates as a business distinct from its owners (Apple).
Advantages & Disadvantages of: a Sole Proprietorship Easy to Set-Up Substantial Freedom Strong Incentives Disadvantages Limited Resources Limited Specialization Unlimited Liability
Advantages & Disadvantages of: a Partnership Easy to Set-Up Greater Specialization More Resources Disadvantages Susceptible to Inaction Resources Limited to the partners Precarious Continuity Unlimited Liability
Advantages & Disadvantages of: a Corporation Easy Raising Money (Stocks and Bonds) Many participants Easy Change of Owners Limited Liability Outlive Owners Disadvantages Legal Expenses Social Consequences Double Taxation (both corporate tax and owners taxed on their dividends)
The Legal Forms of Business and Becoming a Shareholder Vintage University Video on the Topic from the 1940s. Pay special attention to the definitions and how a corporation is formed.
Principal-Agent Problem A conflict of interest can exist when the managers and workers (agents) within a business are disconnected from the owner or principals and their goals. Picture a large corporation with thousands of owners. The employees and managers often have different goals than the owners, and this can manifest itself in many different ways.
Test Preparation Questions 1 & 2 on Page 210.