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Business Organizations
• Sole Proprietorship
• Partnership
• Corporation
Sole Proprietorship
• Business owned and run by one person/family
Sole Proprietorship
• Advantages:1. Ease of
starting up
2. Ease of managing
3. Keep all the profits
Sole Proprietorship
• Advantages:4. No “business
income taxes” to pay- Not a separate
legal entity
Sole Proprietorship
• Advantages:5. Personal
satisfaction
- you are your own boss
Sole Proprietorship
• Advantages:6. Easy to get out
of business- Pay up debts and
stop offering goods or services
Sole Proprietorship
• Disadvantages:1. Personal
unlimited liability- Responsible for all
losses and debts
Sole Proprietorship
• Disadvantages:2. Hard to raise
financial capital (money needed to start the business)- May have to use
savings, credit cards, borrow from banks or friends/family
Sole Proprietorship
• Disadvantages:3. Size and
Efficiency- Need to hire
enough people and stock enough inventory to be successful
Inventory – stock of goods and parts in reserve
Sole Proprietorship
• Disadvantages:4. Limited
managerial experience- May need to hire
people for that role
Sole Proprietorship
• Disadvantages:5. Hard to attract
qualified employees- Usually can’t offer
benefits available with large companies
Sole Proprietorship
• Disadvantages:6. Limited Life
- Ends with failure, death, or when the business is sold
Partnerships
• Business that is jointly owned by two or more persons
Partnerships – Two Kinds
• General Partnership – all partners are responsible for management and finances of the business
I sure hope he knows what he’s doing
I sure hope he knows what he’s doing
Partnerships – Two Kinds
• Limited Partnership – at least one partner is not responsible for daily running of business
Partnerships - Formation
• Articles of Partnership -– Filed with the state– Explain how profits
are divided up– Explain how new
partners can join
Partnerships
Advantages -1. Ease of
establishment• Attorney fees• Filing fees
Partnerships
Advantages -2. Ease of
Management
Partnerships
Advantages -3. No special income
tax to pay
Partnerships
Advantages -4. Easier to obtain
financing and capital• From banks• From new (rich)
partners
Partnerships
Advantages -5. Larger size = more
efficient operations
Partnerships
Advantages -6. Can attract top
talent to work
Partnerships
Disadvantages -1. Each partner is
fully responsible for actions of all the partners
Limited Liability – a partner’s liability is limited to the amount he/she has invested in the business
Partnerships
Disadvantages -2. Limited life –
partnership ends if a partner dies or leaves
Partnerships
Disadvantages -3. Potential conflict
between partners
Partnerships
Disadvantages -4. If the business
fails, partners may have to file for bankruptcy
Bankruptcy – permission granted by the court to stop or delay making payments on debt
Business Organizations Project
• In groups of 4, create a new business to manufacture and sell a unique product
• Must include:– Model of the product– Brochure to sell the product– Commercial to market the product– Description of the business organization
(Major Grade)
Corporations
A business recognized as a separate legal entity with all the rights of an individual
Can:•Buy and sell property•Enter into contracts•Sue and be sued
Corporations - Forming
To become a corporation, you must:
1. request permission from federal or state government – receive a charterCharter – document from government granting permission to incorporate
Corporations - Forming
To become a corporation,
you must:
2. Issue stock to shareholders/
stockholders
Stock – ownership certificatesShareholders/stockholders – investors in the business
Corporations - Forming
To become a corporation,
you may:
3. Issue dividends to shareholders/
stockholders
dividend – a check for a portion of the corporate earnings (profit)
Corporations
Advantages:
1. Ease of obtaining financial capital by:
- Selling stock to investors
– Issuing bondsbond – written promise to repay an amount at a later dateprincipal– amount borrowedInterest – price paid for use of someone’s money
Corporations
Advantages:
2. Can hire managers to run the business
Corporations
Advantages:
3. Provide limited liability for its owners
– Owners not responsible for the success of the business
– Stockholders only lose the amount they invested
Corporations
Advantages:
4. Unlimited life– Continues to exist
even if ownership changes
Corporations
Advantages:
5. Ease of transferring ownership
– Shareholders can sell stock to someone else
Corporations
Disadvantages:
1. Difficulty of getting a charter
– Filing fees, legal fees
Corporations
Disadvantages:
2. Shareholders have little say once they vote for the board of directors
– Board allows the management team to run the business
Corporations
Disadvantages:
3. Double taxation of corporate profits
– Corporate profit is taxed
– Personal income is taxed
Corporations
Disadvantages:
4. Subject to government regulations
– Registered with a state– Registered with the SEC– Keep public informed on
profits and lossesSEC (Securities & Exchange Commission) – regulates and supervises sale of stock
Taking a Loan
• Amount of Loan: $15,000• Interest on Loan: 10%• Length of Loan: 5 yrs.• Monthly Payment: $318.71• Total Paid for Loan:$19,122.60• 1st Payment: $193.71 (principal)
– $125.00 (interest)
Business Growth
• Reinvestment – investment in new plant, equipment, and technologies
Net incomeNet income – revenue minus expenses/taxes
Business Growth
• Reinvestment – investment in new plant, equipment, and technologies
DepreciationDepreciation – general wear and tear on capital goods
Business Growth
• Reinvestment – investment in new plant, equipment, and technologies
Cash flowCash flow – net income plus depreciation (bottom line)
Where is business growth taking place on the chart?
Business Growth
• Mergers – combining two or more businesses to form a single firm
•The new company, ChevronTexaco The new company, ChevronTexaco (worth $45 billion), was formed (worth $45 billion), was formed October, 2001October, 2001•With 53,000 employeesWith 53,000 employees 7% (4,000 employees) lost their jobs7% (4,000 employees) lost their jobs
Business Growth
• Why Merge?– To get bigger– To become more
efficient – To eliminate rivals– To change identity
Business Growth
• Types of Mergers– Horizontal – two or more firms that make
the same product join forces
Business Growth
• Types of Mergers– Vertical – firms
involved in different steps in manufacturing join forces
Other Types of Corporations
• Conglomerate– Corporation with
at least four businesses making unrelated products
Were very popular in ’70s and early ’80s
Other Types of Corporations
• Multinational– Corporation with
manufacturing or service operations in a number of different countries
Other Business Organizations
• Nonprofit Organizations– Promote the
interests of the members, not the financial gain of their owners
Credit Unions
Labor Unions
Professional Associations
Other Business Organizations
• Government’s Role– Direct role –
distributes goods and services to customers
– Indirect role – makes sure the markets operate smoothly