1. 1 Section 1-4 Click the mouse button or press the Space Bar to display the information. Introduction There are three main forms of business organizations in the economy today–the sole proprietorship, the partnership, and the corporation.  Each offers its owners significant advantages and disadvantages.

2. 2 Section 1-5 Click the mouse button or press the Space Bar to display the information. Sole Proprietorships A sole proprietorship is a business run by one person. It is the smallest type of business organization in size, yet the most numerous and profitable.

3. 3 Section 1-6 Sole Proprietorships (cont.) The advantages to sole proprietorships are: ease of start-up; ease of management; owner gets all the profits; business itself pays no income taxes; taxes only on the owner’s personal income; psychological satisfaction of owning one’s business; ease of closing the business.

4. 4 Section 1-6 Sole Proprietorships (cont.) The disadvantages to sole proprietorships are: the owner has unlimited liability; it is hard to raise financial capital; owner may not be able to hire enough personnel or stock enough inventory to operate efficiently; owner may have limited managerial experience; hard to attract qualified employees; business has limited life and legally stops existing when the owner dies or sell the business.

5. 5 Section 1-10 Click the mouse button or press the Space Bar to display the information. Partnerships A partnership is a business jointly owned by two or more persons. It is the least and has the second smallest proportion of sales and net income.  General partnerships are a type of business in which all partners are involved in the management and finances. In a limited partnership, at least one partner is not involved in management. This partner may have helped to finance the business.

6. 6 Section 1-10 Click the mouse button or press the Space Bar to display the information. Partnerships (cont.) Articles of the partnership document spell out how the partners divide up the profits or losses.  The advantages of partnerships are: the 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. 7 Section 1-10 Click the mouse button or press the Space Bar to display the information. Partnerships (cont.) The disadvantages of partnerships are: partners are responsible for the acts of each and every partner, except in a limited partnership where the limits are spelled out; limited life of partnerships ends if a partner leaves; potential for partner conflicts.

8. 8 Section 1-15 Click the mouse button or press the Space Bar to display the information. Corporations Corporations receive a charter, or government permission to create a corporation, which includes details about stock ownership.  A corporation is a business organization recognized by law as a separate legal entity with all the rights of an individual.  Investors who buy common or preferred stock in a corporation become owners of the firm.

9. 9 Section 1-15 Click the mouse button or press the Space Bar to display the information. Corporations (cont.) The disadvantages of corporations are; 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. The advantages of corporations are: 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. 

10. 10 Section 1-17 Click the mouse button or press the Space Bar to display the information. Corporations (cont.)

11. 11 Section 1-19 Corporations (cont.)

12. 12 Section 1-23 Click the mouse button or press the Space Bar to display the information. Government and Business Regulation Federal and state governments regulate interest rates and utility rates.  State governments may offer industrial development bonds to help industries relocate or tax credits to draw investments. 

13. 13 Section 2-2 Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Key Terms –income statement  –net income  –depreciation  –cash flow  –horizontal merger  –vertical merger  –conglomerate  –multinational –merger  Study Guide (cont.)

14. 14 Section 2-4 Click the mouse button or press the Space Bar to display the information. Introduction A business can grow in one of two ways.  First it can grow by reinvesting some of its profits.  A business can also expand by engaging in a merger–a combination of two or more businesses to form a single firm.

15. 15 Section 2-5 Click the mouse button or press the Space Bar to display the information. 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. The business first records its total sales and then subtracts all expenses, taxes, and depreciation. The result is the business’s net income.

16. 16 Section 2-5 Click the mouse button or press the Space Bar to display the information. Growth Through Reinvestment (cont.) Depreciation is added back to net income to get cash flow, or the bottom line—the real measure of business profit.  Business owners then decide whether part of the cash flow should be reinvested in the business to generate additional sales and more profits.

17. 17 Section 2-6 Click the mouse button or press the Space Bar to display the information. Growth Through Reinvestment (cont.)

18. 18 Section 2-9 Click the mouse button or press the Space Bar to display the information. Growth Through Mergers When firms merge, one gives up its separate legal identity.  A company may merge with another to grow faster; become more efficient; acquire or deliver a better product; eliminate a rival; or change its image.  A horizontal merger is the joining of firms that make the same product. A vertical merger is the joining of firms involved in different stages of manufacturing or marketing.

19. 19 Section 2-9 Click the mouse button or press the Space Bar to display the information. Growth Through Mergers (cont.) A multinational is a corporation with manufacturing and service operations in several countries, which are subjected to each nation’s business regulations. Figure 3.6 Conglomerate Structure

20. 20 Section 3-4 Click the mouse button or press the Space Bar to display the information. Introduction Most businesses use scarce resources to produce goods and services in hopes of earning a profit for their owners.  Other organizations operate on a “not-for- profit” basis.  A nonprofit organization operates in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners.

21. 21 Section 3-5 Click the mouse button or press the Space Bar to display the information. Community and Civic Organizations A nonprofit organizations 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  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.

22. 22 Section 3-6 Click the mouse button or press the Space Bar to display the information. Cooperatives A cooperative is voluntary association of people who carry on an economic activity that benefits its members.

23. 23 Section 3-6 Click the mouse button or press the Space Bar to display the information. Cooperatives Consumer cooperatives buy food and other necessities in bulk. Members donate time to the co-op, and members pay lower prices for goods.  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.

24. 24 Section 3-10 Click the mouse button or press the Space Bar to display the information. Labor, Professional, and Business Organizations Labor unions represent workers’ interest and negotiate with management through collective bargaining..  Professional associations set standards for those in the profession and influence government policies on issues concerning members’ interest.  Business associations are industries or trade associations that represent specific kinds of businesses. Some business associations, such as the Better Business Bureau, help protect the consumer.

25. 25 Section 3-Assessment 1 Discussion Question The National Council for the Social Studies is a professional association for social studies teachers. What might it offer its members? Answers will vary, but students may indicate publications with social studies lesson plans, standards for social studies courses, and conferences for teachers. Click the mouse button or press the Space Bar to display the answer.

26. 26 Section 3-15 Click the mouse button or press the Space Bar to display the information. Government Government plays a direct role in the economy when its agencies produce and distribute goods and services to consumers such as the Tennessee Valley Authority (electricity), and the U.S. Postal Service (stamps and mail delivery).  Government corporations have boards of directors, but Congress’s money rather than investor’s money supports their work.  Government plays an indirect role when it regulates public utilities or when it grants money to people in the form of Social Security and student financial aid.

27. 27 Chapter Summary 1 Section 1: Forms of Business Organization Click the mouse button or press the Space Bar to display the information. Sole proprietorships are small, easy-to-manage enterprises owned by one person. They are relatively numerous and profitable. Disadvantages include raising financial capital and attracting qualified employees.  Partnerships are owned by two or more persons. Their slightly larger size makes it easier to attract financial capital and qualified workers. Disadvantages include the unlimited liability of each general partner for the acts of the other partners, the limited life of the partnership, and the potential for conflict among partners.

28. 28 Chapter Summary 2 Click the mouse button or press the Space Bar to display the information. Section 1: Forms of Business Organization (cont.) Corporations are owned by shareholders who vote to elect the board of directors. Shareholders have limited liability and are not liable for the actions or debts of the corporation. The relatively large size of the corporation allows for specialized functions and large- scale manufacturing within the firm.  Disadvantages of corporations include the cost of obtaining charters, limited shareholder influence over corporate policies, and having to deal with some government regulations.  The corporation is recognized as a separate legal entity and so must pay a separate corporate income tax not paid by proprietorships and partnerships.

29. 29 Chapter Summary 3 Click the mouse button or press the Space Bar to display the information. Section 2: Business Growth and Expansion Businesses can grow by reinvesting their cash flows in plant, equipment, and new technology.  Businesses can also expand through mergers. Most mergers take place because firms want to become bigger, more efficient, acquire a new product, catch up to or eliminate a competitor, or change its corporate identity.  A horizontal merger takes place when two firms that produce similar products come together. A vertical merger is one that involves two or more firms at different stages of manufacturing or marketing.

30. 30 Chapter Summary 4 Click the mouse button or press the Space Bar to display the information. Section 2: Business Growth and Expansion (cont.) A conglomerate is a large firm that has at least four different businesses, none of which is responsible for a majority of sales.  A multinational can be an ordinary corporation or a conglomerate, but it has manufacturing or service operations in several different countries. Multinationals introduce new technology, generate jobs, and produce tax revenues for the host countries.

31. 31 Chapter Summary 5 Click the mouse button or press the Space Bar to display the information. Section 3: Other Organizations Nonprofit organizations function like a business, but on a not-for-profit basis to further a cause or for the welfare of their members.  The cooperative, or co-op, is one of the major nonprofit organizations. The co-op can be organized to provide goods and services, or to help producers.  Professional associations work to improve the working conditions, skill levels, and public perceptions of their profession.  Businesses often form a chamber of commerce or a Better Business Bureau to promote their collective interests.

32. 32 Chapter Summary 6 Section 3: Other Organizations (cont.) Government plays a direct role in the economy when it provides goods and services directly to consumers; it plays an indirect role when it provides Social Security, veterans’ benefits, unemployment compensation, and financial aid to college students, or when it regulates businesses.

33. 33 bond _______________________________________ stock _______________________________________ cooperative __________________________________ dividend _____________________________________ unlimited liability_______________________________ charter ______________________________________ labor union ___________________________________ professional association _________________________ limited partner _________________________________ credit union ___________________________________ Click the mouse button or press the Space Bar to display the answer. The Chapter Assessment is on pages 82–83. Chapter Assessment 1 Identifying Key Terms Classify each term below into the following categories: Sole ProprietorshipsCorporations PartnershipsNonprofit Organizations corporations nonprofit organization corporations sole proprietorships; partnerships corporations; nonprofit organizations nonprofit organizations partnerships nonprofit organizations

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