1. Economics Look for your new seat in the new seating chart- I needed a different view of life Take quiz on vocabulary words from Current Event on Canadian medicine… many of you told me you knew what the vocabulary words meant and didn’t need to define them.. 10 easy points for you! Get out study guide on Chapter nine and be ready to go over it.

2. Chapter 9 Types of firms

3. Proprietorship: Business form in which there is only one owner. The owner and the business are one and the same, if your business makes money it is your money, but if your business loses money, you personally suffer the loss.

4. Advantages to Proprietorship 1. Easy to start 2. Little government regulation 3. Profits stay with the owner 4. Pride of ownership 5. Complete control 6. Lower taxes

5. Disadvantages to Proprietorship 1. Unlimited liability: owner’s personal assets can be used to pay the bills of the business 2. Limited life of the business 3. Difficult to raise money 4. Risk of loss is not shared

6. Partnership There are two or more owners. Taking on partners is often how a proprietorship grows. New partners may contribute their personal skills, money or ideas to the business. Partners agree on their respective responsibility and how profits and losses will be shared. They usually have a partnership agreement, which is a legal document that lays out these issues.

7. Advantages to Partnerships 1. Easy to start 2. Little government regulation 3. Not difficult to raise funds 4. Combination of skills

8. Disadvantages to Partnership 1. Unlimited liability. Even a partner who has not put any money into the business is subject to unlimited liability. 2. Profits are shared 3. Limited life of business 4. Disagreements between partners can lead to inefficient operations or even a dissolving of the partnership.

9. Corporations An organization of people legally bound together by a charter to conduct some type of business. They must have a written application to the state requesting permission to form a corporation, called articles of incorporation. –The articles give the name and address of the business along with the initial directors of the corporation, the type of business the corporation is doing and the amount of money being put in the business. If the articles are accepted by the state, the state issues a charter, which is the legal authorization to organize a business as a corporation

10. Corporations The sale of stock is one way in which corporation raise money to start their business. The stockholders elect a board of directors that supervises the operation of the business, but usually does not take an active part in running it. The board of directors also selects people to run the business.

11. Advantages to Corporations 1. Easy to raise funds 2. Limited liability: owners of business are only responsible for its debts up to the amount they invest in the business. 3. Unlimited life: the corporation does not cease to exist if a major stockholder dies. 4. Specialized management: they can hire people who are experts in marketing, accounting, and forecasting 5. Risks are shared; each stockholder takes some risk

12. Disadvantages to Corporations 1. Difficult to start 2. Less direct control 3. Double taxation: business is taxed on income and then profits are divided up among stockholders (dividends) and stockholders are taxed because dividends are income. 4. Limited activities: corporations are limited to activities stated in their articles of incorporation.

13. Test of the market: Being able to provide goods that satisfy consumers’ needs and desires at prices consumers are willing to pay. The business must be able to pay all the necessary factors of production in doing so. The market tends to respond fairly to the consumers’ wishes

14. 74% of the businesses in the US are proprietorships, but they do 6% of the sales. Corporations account for 18% of the businesses and they do 90% of the sales

15. Many large and small companies based in the United States sell and produce products in markets around the globe. A multinational business is one that sells and produces products in multiple countries.

16. Franchise Contract between a parent company and some other business or individual.

17. Franchise Retail franchise granted by the manufacturer. Automotive dealerships are an example of this kind of franchise. 2. Wholesale franchise granted by the manufacturer: Coke sells its syrup to different bottling plants around the US, and then those companies bottle and sells the product to retailers. 3. Service sponsored retail franchisers: local business people are granted the right to provide specific service sector products like McDonalds, Subway etc.

18. Financing a business Every business needs money to get started and run day-to-day operations. Start-up money for most proprietorship and partnership comes from the savings of the people involved and some funds borrowed from the banks or friends. Borrowing from the bank usually requires some form of collateral as security to back up the loan.

19. Financing a business Some businesses need additional cash to help them get through a period of low sales. A line of credit is an arrangement through which the business can access needed cash quickly. Obtaining a line of credit is similar to getting a loan. After the line of credit has been approved, the business can access the money as needed without going through the time- consuming loan process each time

20. Financing a business Corporations can issue bonds to raise money. A bond is a certificate stating the amount the corporation has borrowed from the holder and the terms of the repayment. People who buy bonds get a yearly payment in exchange for the corporation’s use of the money. Interest is the payment for using someone else’s money

21. Stock: Common stock is a type of stock that gives the holder a partial ownership of the corporation. Owners of common stock are not guaranteed any payment. They may receive dividends if the company is successful and the market value of the stock may go up.

22. Mergers: the combining of one company with another company it buys. There are three kinds of mergers:

23. Horizontal mergers: Two companies in the same industry. The two firms operate at the same level or stage in the production process. Horizontal mergers are watched carefully by the Antitrust Division of the Federal Justice Department. If horizontal mergers reduce competition in an industry, they may not be in the public interest

24. Vertical mergers Two companies that are at different stages in the same production process. For example a merger between a steel company and a car manufacturer would be a vertical merger. The Antitrust Division of the Justice Department also keeps a close eye on the vertical mergers. If such a merger might reduce competition, the government might block the merger.

25. Conglomerate mergers Two companies that are in different business. One example was the purchase of Montgomery Wards by Mobil Oil. A conglomerate is a firm made up of many division or subsidiaries that may not have much in common. An example of a conglomerate is PepsiCo. They own Pepsi-Cola, Frito-Lay, KFC, Pizza Hut, and Taco Bell.

26. Why does one company want to buy another company that is in an unrelated business? 1. Most companies try to increase the value of their assets for their owners. If they think they can make a larger return on their investment in a different industry, it may make sense to do so. 2. They may want stabilize stockholder returns. By having assets in a number of different industries, the company is less likely to be hurt when there is downturn in one part of the economy