1. Chapter 9 Business Firms in the Economy

2. Forms of Business Organizations Proprietorships – one individual owns entire business Advantages: 1. easy to start - little “red tape” all that is needed is idea and willingness to accept risk 2. little gov’t regulation – only keep accurate tax records and obey employment rules 3. keep all profits (after taxes) - no partners or shareholders 4. pride of ownership – personal satisfaction 5. complete control – make own decision 6. lower taxes – no corporation taxes

3. Disadvantages: 1. owner has unlimited liability for all debts, claims, and losses (own home, property, and assets at risk) 2. business ends when owner dies/retires 3. difficult and expensive to borrow money – creditors see proprietorships as risky 4. major problem for small business is lack of capital

4. Partnerships – 2 or more people own business 2 types: - general partnership - limited partnership (investor responsible only for their initial investment)

5. Advantages: 1. easy to start – partners agree to terms 2. few gov’t regulations (also similar to proprietorship) 3. easier to borrow or raise money – more than 1 person thus more assets and easier to borrow money 4. often more efficient – 2 people→ more skill and talent

6. Disadvantages: 1. partners have unlimited liability for all debts. claims, and losses (personal assets at risk) 2. profits must be shared according to terms of partnership, even if workload not even 3. business ends when any one of partners dies or retires 4. potential for disagreement among partners

7. Corporations – organization legally bound together by a charter (articles of incorporation) to conduct some type of business - recognized as a legal entity - Board of Directors – runs corporation - powers and duties outlined in bylaws

8. Advantages: 1. most effective for raising money 2. limited liability – owners/stockholders only responsible for debts, claims, or losses up to amount of their investment 3. unlimited life – a legal entity unto itself 4. resources of numerous individuals combined 5. tax advantages 6. risk spread among owners/stockholders

9. Disadvantages: 1.harder to start – must receive legal charter from gov’t and pay fee 2. owners have less direct control (more so in larger corporations) 3. double taxation corporate profits taxed and stockholder dividends taxed 4. corporations limited to activities stated in their charters

10. Partnerships--- - → 9% Corporations 20% Proprietorships 71% Percentage of all Firms

11. Percentage of all Sales Corporations 90% Proprietorships ----→ 6% Partnerships 4% ←--

12. other business terms: liquidity - the act of converting stock into cash franchise – purchasing a corporate name of a successful corporate chain - must abide by chain’s rules for conducting business

13. multinational – company that conducts business in more than one country cartel – group that organizes to control production and prices

14. Financing a Business - bank loans - promissory notes - selling bonds - selling stock (common stock gives stockholder partial ownership of corporation) → stockholder receives dividends if corporation turns a profit → stock value goes up if corporation is successful

15. Mergers: One Way for a Business to get Bigger merger – 1 company combines with another horizontal merger – merger of 2 companies in the same business vertical merger – merger of 2 companies in different stages of production conglomerate merger – merger of 2 companies in different businesses

16. subsidies –financial aid from gov’t or charity