1. Business Organizations
Sole Proprietorships
Partnerships
Corporations

2. Sole Proprietorships
Business owned and run by a single person who has the rights to all profits and unlimited liability for all debts of the firm
71.6% of all businesses are proprietorships
4.6% of all sales are proprietorships
20.9% of net income or profit
Easiest to start and therefore it is by far the most common

3. Proprietorships Advantages Disadvantages Easy to start
Easy to end the business
Profits are all yours
Pride of ownership
Management is fairly simple
Lower taxes – does not pay separate business taxes
Disadvantages
Unlimited liability – requirement that an owner is personally and fully responsible for all losses and debts of the business
Limited life of the business
Difficult to raise money –
loans on your credit or
your personal fortune
Size and efficiency/ limited managerial ability / difficulty attracting employees

4. Partnerships A business that is jointly owned by two or more persons
General Partnership – form of partnership where all partners are equally responsible for management and debts
Limited Partnership – form of partnership where one or more partners are not active in the daily running of the business and have limited responsibility for debts

5. Partnerships 8.5% of all businesses are partnerships
11.8% of all business sales are from partnerships
25.7 of net income
Articles of Partnership – formal legal papers are usually drawn up to specify arrangements between partners, usually state how the expected profits/losses will be shared

6. Partnerships Advantages Disadvantages Easy to start
Not as difficult to raise funds – two sources of $ or credit
Ease of Management– partners can specialize to improve efficiency
Lack of special taxes
More efficient operation due to their larger size
Easier to attract top talent
Disadvantages
Unlimited liability – still applies to a general partnership
Limited life of the business
Profits are shared
Potential for conflicts – people often do not get along and then either have to learn to get along or leave the business

7. Corporations
Form of business organization recognized by law as a separate legal entity
Articles of Incorporation – a written application to the state requesting permission to form a corporation
Charter – written government approval to establish a corporation
The charter specifies the number of shares of stock the firm has
Stock is a certificate of ownership in a corporation

8. Corporations
Stockholders or Shareholders – people who own a share or shares of stock in a corporation
Dividend – check that transfers a portion of the company profits to stockholders, usually quarterly
19.9% of businesses are corporations
83.6% of business sales are from corporations
53.4% of net income

9. Corporations
Common Stock – most frequently used form of corporate ownership, with one vote per share for stockholders
Preferred Stock – form of corporate ownership without vote, in which stockholders get their investments back before common stockholders
Bond – formal contract to repay borrowed money with interest
Principal – amount borrowed when getting a loan or issuing a bond
Interest – payment made for the use of money

10. Corporations Advantages Easy to raise money (stocks and bonds)
Limited Liability – the concept that owners of a business are only responsible for its debts up to the amount they invest in the business
Unlimited Life
Can hire professional managers to run the firm
Ease of transferring ownership of the corporation

11. Corporations Disadvantages
Difficult to start – must obtain government approval
Less direct control – owners are often far removed from the day-to-day operations
Double taxation – taxation of dividends both as corporate profit and as personal income
Subject to more government regulation than other forms of business organization

12. Business Growth and Expansion
Growth through reinvestment – businesses can use profits to invest in new plant, equipment, and products
Income Statement – a report showing a firm’s sales, expenses, net income, and cash flows for a certain period, usually three months or a year
Net Income – common measure of business profits determined by subtracting all expenses, including taxes, from revenues

13. Growth Through Reinvestment
Depreciation – gradual wear on capital goods
Cash Flow – total amount of new funds a business
generates from operations

14. Mergers The combination of two or more businesses to form a single
Horizontal Mergers - a combination of two or more firms producing the same kind of product (bank merger of JP Morgan and Chase Manhattan to form JPMorgan Chase)
Vertical Mergers – a combination of firms involved in different stages of manufacturing or marketing ex. US Steel

15. Mergers
Conglomerate – a firm with four or more businesses making unrelated products with no single business responsible for a majority of its sales ex. PepsiCo,
The government closely monitors horizontal and vertical mergers because they can reduce competition – the Antitrust Division of the Justice Department regulates them

16. Multinational Business
Multinational Business – corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries
Toyota – 3 plants in US produced about 700,000 vehicles – 3 more plants produce engines
Pays taxes in each country and must follow their laws

17. Nonprofit Organizations
Nonprofit Organization – economic organization that operates like a business but does not seek financial gain
They work in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners
The American Red Cross is an example

18. Nonprofit Organizations
Community Organizations – A type of nonprofit organization that includes schools, churches, hospitals, welfare groups, and adoption agencies
Many of these organizations are legally incorporated to take advantage of unlimited life and limited liability.
They do not issue stock, pay dividends, or pay income taxes – if they produce profit they use the surplus to further their work

19. Cooperatives
Cooperatives (co-ops) – nonprofit association performing some kind of economic activity for the benefit of its members
Consumer Cooperative – a voluntary association that buys bulk amounts of goods such as food or clothing on behalf of its members ex. Housing cooperatives, discount price clubs, bulk food stores

20. Cooperatives
Service Cooperative – provides services to its members, rather than goods ex. Insurance companies, babysitting services, and credit unions – a financial organization that accepts deposits from, and makes loans to, employees of a particular company or government agency
Producer Cooperative – helps members promote or sell their products – usually agricultural ex. Rothsay Farmer’s Coop

21. Other Nonprofits
Labor Unions – an organization of workers that works for its members’ interests concerning pay, working conditions, and benefits
Unions have the right to collective bargaining – negotiation between union and company representatives over pay, benefits, and other job-related matters

22. Other Nonprofits
Professional Associations – nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, and public perception of its profession ex. AMA and ABA
Business Associations – ex. chamber of commerce – nonprofit organization of local businesses formed to promote their interest AND the Better Business Bureau – business sponsored nonprofit organization providing information on local companies to consumers

23. Government as a Nonprofit
The government sometimes takes a direct role in the economy by supplying goods and services ex. USPS, TVA, FDIC – Many of these are organized as private businesses
Government plays an indirect role when it acts as an umpire to help the market economy operate smoothly and efficiently – ex. when it regulates utilities or provides payments to people through social security