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04/19/23 1
Business Organizations
Chapter 3
04/19/23 2
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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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
04/19/23 4
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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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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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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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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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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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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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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Business Growth & Expansion
Section 2
04/19/23 12
Merger
Combination of two or more businesses to form a single firm
Can be risky
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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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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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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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Nonprofit Organizations
Section 3
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Nonprofit Organization
Economic organization that operates like a business but does not seek financial gain
I.E. American Red Cross
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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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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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Professional Association
Nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, & public perception of its profession.
04/19/23 21
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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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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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