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10/7/20151 Business Organizations Chapter 3
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10/7/20152 Sole Proprietorships Most common form of business organization in the U.S. Owned & run by one individual Smallest form of business Smallest fraction of total sales
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10/7/20153 Forming a proprietorship Easiest form of business to start Only requirements…business license & fees Advantages Own boss, keep profits, do not have to pay separate taxes Disadvantages Unlimited liability, hard to raise money, size & efficiency, limited managerial experience, hard to find good employees, & limited life
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10/7/20154 Partnerships Business that is jointly owned by two or more people. Least common type of business organization Types of partnerships General partnership Most common form All partners are responsible for management & financial obligations of business Limited partnership At least one partner is not active in the daily running of the business. The limited partner has limited responsibility for debts & obligations
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10/7/20155 Forming a partnership Easy to start up Articles of partnership Specifies arrangements between partners I.e. How are profits divided up? How are tasks assigned? Advantages Ease of start-up, minimal costs, focus on strengths Disadvantages Conflict, limited life
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10/7/20156 Corporations Form of business organization recognized by law as a separate legal entity Has all of the rights of an individual Corporation has the right to buy and sell property, to enter into legal contracts, and to sue and be sued
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10/7/20157 Forming a corporation Must file for permission from national government or state where business will have its headquarters Charter Government document that gives permission to create a corporation States company’s name, address, purpose, and other features of the business
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10/7/20158 Stock Certificate of ownership in a corporation Shares of stock are sold to stockholders or shareholders They become part-owners in company Dividends – portion of corporations profits are paid to stockholders
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10/7/20159 Corporate Structure Common stock Most frequently used form of corporate ownership, with one vote per share for stockholders Votes are used to elect a board of directors, which in turn directs the corporation’s business by setting policies & goals
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10/7/201510 Preferred stock Form of corporate ownership without vote Stockholders get their investments back before common stockholders Corporation Adv – ease of raising money, limited liability, unlimited life Disadv – double taxation, expensive to set up, less control, more govt regs
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10/7/201511 Business Growth & Expansion Section 2
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10/7/201512 Merger Combination of two or more businesses to form a single firm Can be risky
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10/7/201513 Income statement Report showing a firm’s sales, expenses, net income, and cash flows for a certain period Shows how a business uses some of its revenue to reinvest in the company
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10/7/201514 Net income Common measure of business profits determined by subtracting all expenses, including taxes, from revenues Depreciation- a noncash charge the firm takes for general wear & tear on its capital goods Cash flow- total amount of new funds a business generates from operations
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10/7/201515 Growth through mergers Types of mergers Horizontal – same product Vertical – different stages of production Conglomerates – unrelated products Reasons for merging Grow faster, efficiency, better product, eliminate rival, change image Multi-nationals - A corporation that has operations in a # of different countries
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10/7/201516 Nonprofit Organizations Section 3
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10/7/201517 Nonprofit Organization Economic organization that operates like a business but does not seek financial gain I.E. American Red Cross
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10/7/201518 Cooperatives Nonprofit association performing some kind of economic activity for the benefit of its members Types of cooperatives Consumer Service Producer
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10/7/201519 Labor Unions An organization of workers formed to represent its members’ interests concerning pay, working conditions, and benefits Collective Bargaining Negotiations with management over issues such as pay, hours, insurance, and other job related matters Unions also lobby for laws that will benefit & protect their workers
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10/7/201520 Professional Association Nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, & public perception of its profession.
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10/7/201521 Chamber of commerce Nonprofit organization of local businesses formed to promote their interests. Sponsors activities ranging from educational programs to lobbying for favorable business legislation
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10/7/201522 Better Business Bureau Business-sponsored nonprofit organization providing information on local companies to consumers Also maintain records of consumer inquiries & complaints Offer consumer education programs
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10/7/201523 Government Direct Role Many government agencies produce & distribute goods/services to consumers. I.E. USPS, FDIC Indirect Role Acts as an “umpire” to help the market economy operate smoothly & efficiently. I.E. regulation of public utilities
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