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Business Organization
Sole Proprietorship, Partnerships and Corporations
Four Elements of a Business
1. Expenses2. Advertising3. Receipts and Record Keeping4. Risk
Calculating Profits
Revenue - Expenditures = Profit
Sole Proprietorship
Business owned by one person 73% of all businesses
Advantages/Disadvantages of a Sole Proprietorship
Advantages Receive all profits Decisions all yours (management) Lower tax rates Personal satisfaction
Disadvantages Losses not shared Unlimited liability Must make all decisions Very time consuming Financial capital usually low When owner dies – business usually closes
Partnership
A business that two or more individuals own and operate.
Many professional occupations are partnerships (ex. doctors, dentist, etc.)
Types of Partnerships1. Limited Partnership2. Joint Ventures
Advantages/Disadvantages of Partnership
Advantages Losses shared More efficient – work in expertise Lower taxes than corporations Combines capital investment of two people
Disadvantages Share profit If one partner cannot pay; the other is liable Must be able to get along Capital borrowing is limited to combined assets of the two partners Financial capital usually low If a partner dies – must be ended or reorganized
Corporations
An organization owned by many people but treated by the law as though it were a person.
In order to be a corporation:1. Register with the state government2. Sell stock3. Elect Board of Directors
Corporation continued
Selling Stock:1. Common Stock – voting rights/dividend?2. Preferred Stock – no voting rights/dividend guaranteed; first claim if
bankrupt Elect Board of Directors – hires officers to corporation NASDAQ; NYSE; Dow Jones
Starting a Corporation
Dow Jones Industrial Average
Corporate Structure - Example
Corporation continued
Franchises A contract in which a franchisor sells to
another business the right to use its name and sell its product
Advantages/Disadvantages of Corporation
Advantages Stockholders do not have devote time to company to make
money Limited liability Management is divided among many people Can issue stock to raise capital
Disadvantages Decision making can be slow Corporate profit is taxed Individual stock owners have very little say in company Corporation can continue indefinitely
Business Growth and Expansion
Growth Through Reinvestment
– Income statements – report showing business’s sales, expenses, net income and cash flow
Chapter 3 Section 2
Growth Through Mergers
– Horizontal Merger – (pg. 75)
– Vertical Merger– Conglomerates – at least 4 businesses – unrelated (ex. Disney – see next slide)
– Multinationals BP, Royal Dutch Shell, Nabisco
$8.5 billion
$1 Billion
Conglomerates in the U.S.
Non Profit Organizations
Community Organizations and Cooperatives– Cooperatives
Consumer cooperatives Service cooperatives Producer cooperatives (farm cooperatives)
Chapter 3 Section 3
Labor, Professional and Business Organizations
– Labor Unions Collective Bargaining
– Professional Associations American Medical Associations (AMA)
– Business Associations Better Business Bureau (BBB)