1. AGENDA: Fri 2/24 & Mon 2/27 Review Market Quiz QOD #16: I’m the boss of me! I’m lovin’ it! Business Firms (Computer lab next class) HW: pg 155 #1-10

2. QOD #16: I’m the boss of me!  Explain why you would or would not want to run your own business.  Regardless of your first response, assume you are going to start your own business. Would you rather buy an existing business or start from scratch? Explain.  What products/services would your business sell and why?  How would your guarantee profit for your business?

4. History of McDonald’s  Take notes on a T-chart.  Left side = History events  Right side = Problems encountered  Summary at the bottom discussing following questions: 1. How would you rate Ray Kroc as an entrepreneur? 2. How would you rate Ray Kroc based on his character? 3. Would you want to be friends w/ Ray Kroc?

5. Why do business firms exist?  People working together can produce more than individuals working alone.  Shirking: putting forth less than the agreed upon effort  How does one person shirking impact others?  Monitor: coordinates team production & seeks to reduce shirking (Can hire/fire)  Monitoring the monitor incentives – reward for doing your job  Residual Claimant: receives excess revenue after costs (profits) as income  profit sharing  bonus

6. Sole Proprietorship  business owned by one individual  makes all the decisions  receives profits or losses  legally responsible for firms debts

7. Advantages of Sole Proprietorships  Easy to form and dissolve  All decision making power with the sole proprietor  Profit of the company only taxed once  personal income tax

8. Disadvantages of Sole Proprietorships  Unlimited liability  you may lose your house because your business fails  Limited ability to raise funds for business expansion  borrowing funds getting harder  Limited Life – business usually ends with death/retirement  Employees like to work for companies that have permanency

9. Partnerships  owned by 2 or more co-owners or partners who share profits and are legally responsible for any debts incurred by the firm. like sole proprietorship with more than one owner

10. Advantages of partnership  Specialization: As one person is better at public relations, while another person is better at artwork, each can work at the specialty they are best suited  Taxation: Only personal income taxes apply- Corporate taxes do not apply to the owners in the partnership.

11. Disadvantages of Partnerships  Liability is unlimited-  General Partners: These partners are in charge of managing the firm; the have unlimited liability even if debt is incurred by other partners  Limited Partners: The liability is restricted to the how much he/she invested in the firm; yet, they do not participate in the management sometimes called silent partners  Decision Making problems-  Some people might disagree on certain situations

12. Corporations  A legal entity that can operate business in its own name in the same way that an individual does  It is owned by the stockholders who buy shares of stock (assets) in the corporation.  Stockholders- People who buy shares if stock in a corporation.  stock represents a claim on the assets  Assets- Anything of value to which the firm has legal claim.  The law treats a corporation like a person.  Example: 2,000 people want to construct a corporation called ABC. Suppose ABC is in debt of $5 million and it only has $2 million to pay the debt. Legally, the remainder of the debt is the corporation that owes the money, not the owners of the corporation, because the owners have limited liability.

13. Corporations Advantages  Limited liability- stockholders cannot be sued for the corporation’s failure to pay its debts.  Continue to exist even if one or more owners sell their shares or die.  Usually able to raise large sums of money by selling stock. Disadvantages  Corporations are subject to double taxations US federal corporate income tax ( 39.3% rate) and dividends are taxed through personal income tax.  Corporations are difficult to set up.

14. Country / Corporate income tax rates - 2008  Japan – 39.5 United States – 39.3 France – 34.4 Belgium – 34.0 Canada – 33.5 Luxembourg – 30.4 Germany – 30.2 Australia – 30.0 New Zealand – 30.0 Spain – 30.0 Mexico – 28.0 Norway – 28.0 Sweden – 28.0 United Kingdom – 28.0 Italy – 27.5  Korea – 27.5 Portugal – 26.5 Finland – 26.0 Netherlands – 25.5 Austria – 25.0 Denmark – 25.0 Greece – 25.0 Switzerland – 21.2 Czech Republic – 21.0 Hungary – 20.0 Turkey – 20.0 Poland – 19.0 Slovak Republic – 19.0 Iceland – 15.0 Ireland – 12.5

15. Typical Corporate Structure Stockholders  Board of Directors  Secretary (COE)  President (CEO)  Treasurer (CFO)  Vice-President  All other Employees

16. Corporate structure pg 150  Board of Directors (or sometimes called board of governors)- decision making body that decides on corporate policies and goals elected by the stock/ shareholders of the company. The company is publicly owned. BOD do not work for the company but make decisions on behalf of the share holders or the investors  CEO- Chief executive officer (Pres), CFO, COO (VP)  The famous Mark Zuckerberg, CEO of Facebook.com is now estimated to be worth between $3 and $5 billion.

17. How to form a Corporation 1. Promoters advertise the prospectus 2. Articles of incorporations 3. Corporate charter 4. Organizational meeting Board of Directors – decision-making body decides corporate policies and goals Bylaws – internal rules of the corporation Corporate officers

18. AGENDA: Tues 2/28 & Wed 2/29 QOD #17: Business Start-up Review Homework (pg 155 #1-10) Business Firms (cont.) Business Start-up Games HW: Play your own Game Study for Ch 6 Quiz Progress Report Signed Permission Slip for Field Trip (if attending)

19. What type of business?

20. Other business structures  Cooperatives- co-op a business that provides a service to its members and in most cases is not run for profit  Exceptions: non-cooperatives (See next slide!)  Farming coops- Land O’Lakes, Sunkist, Ocean Spray, Welch  Credit unions, health care & stores including REI  Franchises – a contract by which a firm (usually a corporation) lets a person or group use its name and sell its goods or services. In return, the person or group must make certain payments and meet certain requirements.  McDonald’s, Chipotle, Pizza Hut, Rubio’s, Panera Bread, 7-11, etc.

22. The truth about cooperatives  Share in the earnings. Some people talk about non-cooperative firms operating "for profit" while cooperatives operate "at cost." This isn't totally accurate. Most cooperatives generate earnings. They differ from non-cooperative firms in how they allocate and distribute their earnings.  A non-cooperative firm retains its earnings for its own account, or perhaps pays part of them out to shareholders as dividends, based on the amount of stock each investor owns. In a cooperative, earnings are usually allocated among the members on the basis of the amount of business each did with the cooperative during the year. A cooperative that has net earnings of $20,000 during the year and conducts 2 percent of its business with Ms. Jones. She is allocated $400 of those earnings ($20,000 x.02).

23. References  http://www.rurdev.usda.gov/rbs/pub/cir55/cir55rpt.htm http://www.rurdev.usda.gov/rbs/pub/cir55/cir55rpt.htm  Arnold, R (2001). Economics in our times, 2nd edition. Chicago, IL: National Textbook Company.  http://computercleaning.files.wordpress.com/2008/03/mcdonalds.jpg http://computercleaning.files.wordpress.com/2008/03/mcdonalds.jpg  http://micpohling.wordpress.com/2008/08/07/oecd-corporate-income- tax-rate-2008/ http://micpohling.wordpress.com/2008/08/07/oecd-corporate-income- tax-rate-2008/

24. CHAPTER 6: BUSINESS FIRMS