1. #19
Unit 2 Microeconomics

2. Unit 2 Warm Ups #20

3. Key Terms Sole proprietorship- a business owned by one person
Unlimited liability -when the owner is responsible for the company’s debts
Partnership- a business owned by two or more people who share its risks and rewards
Corporation- a company that is registered by a state and operates apart from its owners
Limited liability- holding a firm’s owners responsible for no more than the capital that they have invested in it
Cooperative- an organization that is owned and operated by its members
Nonprofit organization- a type of business that focuses on providing service, not on making a profit
Franchise- a contractual agreement to use the name and sell the products or services of a company in a designated geographic area

4. Business Organizations #22
1. Sole Proprietorship—A business owned and operated by one person.
Oldest, simplest, most common type
Who owns SP’s? (Internet advantages)

5. Advantages of Sole Proprietorships:
Low Cost start up
Full control
Exclusive right to all profits

6. Sole Proprietorships 1. Low Cost Start Up—
Require small amount of money
Involve few legal requirements
Zoning Laws—Must observe; not all businesses can operate in certain areas because of zoning restrictions.
May have to obtain city/county licenses

7. Sole Proprietorships
2. Control—You maintain complete control and can make quick decisions.
Minimal paperwork, meetings, depends on YOU!
3. Profit—The owner (YOU) keeps all the profits.

8. Sole Proprietorships Disadvantages: Unlimited liability
Sole responsibility
Difficulty Raising Capital
Lack of longevity

9. Disadvantages of S.P.
1. Unlimited Liability—YOU are personally responsible for all business debts.
2. Sole Responsibility—YOU are responsible for ALL aspects of running your business.
3. Difficulty Raising Capital—
Collateral—Anything of value you pledge as security for a loan.

10. Disadvantages of SP
4. Lack of Longevity—The length of a firm’s life or the amount of time the business operates.
Ex. Your health
Ex. You lose interest in the business
Ex. Your competence

11. Partnerships
Partnership—A business that is owned and controlled by two or more people.
Ex. Small retail stores, construction companies, doctors, lawyers, accountants, etc.
Two types of partnerships:
General—Partners enjoy equal decision making authority.They also have unlimited liability.
Limited—Partners who provide capital($) but do not play an active role in running the company. Liability is also limited.

12. Advantages of Partnerships
Ease of start-up
Specialization
Shared decision making
Shared business losses

13. Advantages of Partnerships
1. Easy start up–
Few government regulations
Costs tend to be low
Partners usually develop a partnership contract
2. Specialization—Specific business duties can be assigned to different partners based on expertise and individual talents.
Ex. One good in sales—other good in accounting

14. Advantages of Partnerships
3. Shared Decision Making—Partners can minimize mistakes by consulting with each other.
Can pool each others skills
4. Shared Business Losses—The sharing of losses may enable a partnership to survive a situation that might cause a sole proprietorship to fail Example:
2 partners: Business loss $20,000: Each partner loses only $10,000 each. Sole Prop.=$20,000

15. Disadvantages of Partnerships
1. Unlimited Liability—Each partner is responsible for debts incurred by the business.
If one partner refuses to pay for his share, then the other partners are still liable for the debt.
2. Potential Conflict—Disagreements or conflicts may arise among partners.
Different management styles
Personality conflicts

16. Disadvantages of Partnerships
3. Lack of Longevity—Life of the business is dependent on the willingness and ability of the partners to continue to work together.
One may decide that he/she can no longer work together as partners.
Find a new partner or maybe even close the business.

17. Franchise
a contractual agreement to use the name and sell the products or services of a company in a designated geographic area

18. Advantages of Franchise
1. Smaller than usual capital investment
2. Prior public acceptance of product
3. Better than average profit margins
4. Management assistance

19. Disadvantages of Franchise
1. Possible high franchiser fee
2. Some loss of independence
3. Possible difficulties in canceling contract

20. Corporations
Corporations—Are companies that are formed as legally distinct from their owners and are treated as if they were individuals.
Can: Hire workers, make contracts, pay taxes, sue and be sued, make & sell products.

21. Forming a Corporation 7.3
1. Must apply for a state license known as the: articles of incorporation.
Includes: name and purpose of corp.
Address and headquarters
Amount of $ it expects to raise
Names and addresses of officers
Length of time expected to exist
License granted is called: corporate charter

22. Corporate Structure Structure: Owners/Shareholders Board of Directors
Corporate Officers
Vice Presidents
Department Heads
Employees

23. Organization Chart

24. Corporate Finances 7.3
Stock—Shares that represent ownership of the firm.
Shares—Portions(certificates) issued.
Dividends—Profits paid to shareholders.
Common Stock—Allowed to vote
Preferred Stock—Guaranteed dividends; paid before common stock. No vote.

25. Corporate Finances 7.3
Corporate Bond—Certificate issued by a corporation in exchange for money borrowed.
Principal—The actual amount of money borrowed. Ex. Buy interest
Principal=$10,000 X 5%= $500 per year income
Interest—Amount borrower must pay for the use of the principal.

26. Advantages of Corporations
Benefits to stockholders—
1. Limited Liability
2. Can sell their shares at any time
Benefits for Corporations:
1. Limited liability
2. Separation of ownership from management.
3. Capital can be raised easily
4. Longevity

27. Disadvantages of Corporations
1. Corporate charter can be expensive and difficult to obtain.
2. Government regulation
3. Slow decision making process
4. For stockholders—Stockholders can earn a profit, without working for corp.
5. Corporate profits are taxed twice.

29. The Securities Language
Market cap = market capitalization (price per share X number of shares outstanding).
Ticker symbol = letters assigned to a particular stock. Ex. Microsoft = MSFT
Stock broker = work for firms that specialize in the buying and selling of stock.
Earn a profit by collecting commission and fees for each transaction.
IPO = Initial Public Offering – when a stock first goes public.
Google’s was $85 in 2004
As of 2009? $490

30. Market Capitalization
Price per share X the number of outstanding shares. (Ex. $10/share X 1,000,000 shares=$10 million market capitalization.
Large cap.
Greater than 10 billion dollars in market cap.
Mid cap.
Between 1 billion and 5 billion dollars market cap.
Small cap.
1 billion dollars or less in market cap.
see examples on CBS Marketwatch.

31. A Few Exchange Facts NYSE Started in 1792 with 24 brokers
First stock was Bank of New York
To be listed: company minimum worth of $60m and $2m earned per year for last 2 years
Might note that even though PSE is on the West Coast, they have the same trading hours are the rest of them.

32. Ticker Symbols Letters assigned to a particular stock.
NYSE - generally 1 to 3 letters.
NASDAQ - generally 4 letters.
Examples:
T = AT&T.
INTC = Intel.
TXN = Texas instruments.
IBM = IBM.
show more examples or have them do a worksheet at this point
(worksheet to determine small, mid or large cap and exchange)
T, INTC, RMBS, IBM, TXN, BEAS,
O       T = AT&T, INTC = Intel, TXN = Texas instruments, IBM = IBM, DAL = delta airlines, BA = Boeing, LUV = southwest airlines, AMR = American airlines, RMBS = Rambus.