1. Business Organizations

2. Business Organizations
3 kinds in today’s economy
Sole proprietorship
Partnership
Corporation

3. Sole Proprietorship
Most common form of business organization in the U.S.
A business owned and run by one person.
Easy to start, manage, change, or end.
Disadvantage is the owner only has limited liability, meaning they are personally and fully responsible.
High risk, high reward

4. Sole Proprietorship Minimum inventory Limited life
Stock of finished goods and parts in reserve.
Limited life
Firm legally ceases to exist when the owner dies, quits, or sells the business.

5. Partnerships Business that is jointly owned by 2 or more persons.
General
All partners are responsible
Some more than others (Example: 50/50, 40/60, etc.)
Limited
At least one partner isn’t active in the daily running of the business, although, they may have contributed funds.

6. Partnerships Easy to establish and manage.
Also, funds are contributed from several people.
Disadvantage is each partner is responsible for the business which can create a clash of perspectives.

7. Corporations
Separate legal entity having all the rights of an individual.
Charter: Government document that gives permission to create a corporation.

8. Corporations Stockholders (shareholders) are owners as well.
If corporation suffers, so do the stockholders.

9. Business Growth and Expansion
Businesses can grow in one of 2 ways.
Reinvesting some of its profits
Merger: Combination of 2 or more businesses to form a single firm.

10. Reinvestment Growth Using revenue from sales to invest.
Estimating cash flows
Income statement: Report showing a business’s sales, expenses, and profits for a certain period.
Net income: Subtracting all its expenses, including taxes, from its revenues.

11. Reinvestment Growth
Expenses can include inventory, wages and salaries, interest payments, and depreciation, a non-cash charge that accounts for the general wear and tear of its capital goods.
Cash flow: Sum of net income and depreciation is the bottom line, a real measure of profits for the business.
Reinvested into the business.

12. Growth Through Mergers
One firm merges, one gives up its separate legal identity.
Example: Continental and United Airlines merged and kept the United name.
Reasons
Grow faster, become more efficient, acquire or deliver a better product, eliminate a rival, or to change its image.

13. Growth Through Mergers
Types
Horizontal merger: Two or more firms that make the same kind of product join forces.
Vertical merger: Firms involved in different steps of manufacturing or marketing join together.

14. Growth Through Mergers
Conglomerate: Firm that has at least 4 businesses, each making unrelated products, none of which is responsible for a majority of the sales.
Multinational: Has manufacturing or servicing operations in a number of different countries.