Chapter 3

1. Chapter 3 Business Organizations

2. Jump Start Chapter 3 section 1 • What is the most common form of business organization in the United States? • Sole proprietorship • Partnership • Corporation • Limited partnership • What is the main strength of the corporate form of business organization? • Ease of rising financial capital • Ease of establishment • Ease of management • Freedom from business income taxes? • A government document granting permission to create a corporation is called a • Dividend • Charter • Bond • Proxy • Basic ownership of a corporation, including voting rights, takes form of • Bonds • Preferred stock • Partnerships • Common stock • All of the following are strengths of the partnership form of business organization EXCEPT: • Ease of management • Limited life • Ease of establishment • Lack of special taxes

3. Sole Proprietorship • A business that is owned and managed by one individual who receives all the profits and bears all the losses. • Most common form of business organization BUT the smallest in size. • Most numerous and profitable

5. Partnerships • A business that is owned and managed by two or more individuals who receive all the profits and bear all the losses. • Numerous among business organizations • Second smallest proportion of sales and net income • General- • All partners are responsible in management and finances • Limited- • One partner is NOT active in daily business but gave money to start the business • Articles of partnership: documents that spell out how the partners divide up the profits or loses

6. Corporations • A business that is owned and operated by stockholders and has rights and responsibilities as if it were a person • 90% of all businesses • Organized and recognized by law • Can buy, sell, enter into contracts, and be sued • Harder to start – need permission from the government • Includes details about Stock ownership

7. Preferred Stock • Dividend guaranteed • Stock holders receive no voting rights • Stockholders receive dividend before common stockholders receive theirs • SH: receive investment back before common SH • Both: • Ownership certificates in a corporation • Purchased by investors called stockholders or shareholders • Provide ownership rights • Common Stock • Represents basic ownership of a corporation • Stock holders receive voting rights • No dividend received

9. Sole Proprietorship Easy to start Ease of management Control over profits Personal freedom Lower taxes Ease of closing the business Psychological benefits: own you own business Partnership Easier to raise financial capital (through bank loans or new partner) Ease of management Partners may combine managerial skills Lower taxes Easier to attract qualified workers Corporation Limited Liability Greater financial capital – stocks, bonds Unlimited life Specialized management Easy transfer of ownership Benefits of the Three

10. Sole Proprietorship Unlimited liability – owner responsible for all losses and debts Difficulty in raising financial capital Difficulties hiring (qualified) personal/stock enough inventory Management knowledge may be limited Limited Life/stops existing with death or owner or owner sells the business Partnership Unlimited liability Shared profits Possible conflicts between partners Limited life Corporation Ownership and management are separated/shareholders have little say in running the business Increased taxation Difficulty in starting Increased governmental control Cost of the Three

11. Government and Business Regulations • Federal and state regulate interest rates and utility rates • State may offer industrial development bonds to help industries • Relocate or tax credits to draw investors

12. Jump Start Chapter 3 section 1 • What is the most common form of business organization in the United States? • Sole proprietorship • Partnership • Corporation • Limited partnership • What is the main strength of the corporate form of business organization? • Ease of rising financial capital • Ease of establishment • Ease of management • Freedom from business income taxes? • A government document granting permission to create a corporation is called a • Dividend • Charter • Bond • Proxy • Basic ownership of a corporation, including voting rights, takes form of • Bonds • Preferred stock • Partnerships • Common stock • All of the following are strengths of the partnership form of business organization EXCEPT: • Ease of management • Limited life • Ease of establishment • Lack of special taxes

13. Sole proprietorship Limited life Limited partnership Corporation Bankruptcy A business owned and run by one person Business organization in which at least one partner is not active in the daily running of the business business organization recognized by law as a separate legal entity having all the rights of an individual A firm ceases to exist when the owner dies, quits, or sells the business A court-granted permission to an individual or business to cease or delay debt payments Review Vocabulary Chapter 3 Section 1

14. Review Vocabulary Chapter 3 Section 1 • Sole proprietorship (A business owned and run by one person) • Limited life (A firm ceases to exist when the owner dies, quits, or sells the business) • Limited partnership (Business organization in which at least one partner is not active in the daily running of the business) • Corporation (business organization recognized by law as a separate legal entity having all the rights of an individual) • Bankruptcy (A court-granted permission to an individual or business to cease or delay debt payments)

15. Business Growth and Expansion

16. Jump Start Chapter 3 section 2 • A corporation that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales, is called • Multinational • Horizontal corporation • Conglomerate • Vertical merger • Horizontal Merger involve • Two or more firms in different countries • Two or more firms that produce the same kind of project • Two or more firms involved in different steps of manufacturing or marketing • Two or more firms that produce different products • Which of the following statements are true? • All conglomerates are multinational • All multinationals are conglomerates • A conglomerate is another term for a multinational • A multinational is often a conglomerate • Which are important for their ability to move resources, products, and financial capital across national boundaries with relative ease? • Corporations • Conglomerates • Mergers • Multinationals • What is a major reason for conglomerates mergers? • Diversification • Multinationals • Unlimited life • Conglomeration

17. Growth through Reinvestments • Business revenue can be used for • Investment in factories • Machinery • Technologies • Before reinvestments: • Must estimate its cash flow. • First records its total sales and then subtracts all expenses, taxes, and depreciation = net income • Net income + depreciation = cash flow (or the bottom line) real measure of business profit. • Decide to reinvest part of cash flow or additional sales and more profits

19. Growth Through Mergers • Firms merge, one gives up it separate legal identity • Company may merge with another to • Grow faster • Become more efficient • Acquire or deliver a better product • Eliminate a rival • Change its image

20. Growth Through Mergers • Horizontal mergers: joining of firms that make the same product (Nextel and Sprint) • Vertical Merger: joining of firms involved in different stages of manufacturing or marketing

21. Growth through Mergers • Conglomerate: composed of four or more businesses • Marketing unrelated products • None are responsible for a majority of sales • Multinational: corporation with manufacturing and service operations in several countries • Subject to each nation’s business regulations

22. Merger Net income Depreciation Multinational Vertical merger A non-cash charge a firm takes for the general wear and tear on its capital goods A corporation that has operations in a number of different countries Determined by subtracting expenses, including taxes, from revenue Business combination of firms involved in different steps of manufacturing or marketing A combination of two or more businesses to form a single firm Chapter 3 section 2

23. Review Vocab. Chapter 3 section 2 • Merger (Voluntary association of people formed to carry on some kind of economic activity that will benefit its members) • Net income (Determined by subtracting expenses, including taxes, from revenue) • Depreciation (A non-cash charge a firm takes for the general wear and tear on its capital goods ) • Multinational (A corporation that has operations in a number of different countries) • Vertical merger (Business combination of firms involved in different steps of manufacturing or marketing)

24. Jump Start Chapter 3 section 2 • A corporation that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales, is called • Multinational • Horizontal corporation • Conglomerate • Vertical merger • Horizontal Merger involve • Two or more firms in different countries • Two or more firms that produce the same kind of project • Two or more firms involved in different steps of manufacturing or marketing • Two or more firms that produce different products • Which of the following statements are true? • All conglomerates are multinational • All multinationals are conglomerates • A conglomerate is another term for a multinational • A multinational is often a conglomerate • Which are important for their ability to move resources, products, and financial capital across national boundaries with relative ease? • Corporations • Conglomerates • Mergers • Multinationals • What is a major reason for conglomerates mergers? • Diversification • Multinationals • Unlimited life • Conglomeration

25. Other Organizations

26. Jump Start Chapter 3 section 3 • Which of the following is an example of a service cooperative? • Greenville Teachers’ Credit Union • Association of Manufacturing Workers • Better Business Bureau • Mason Chamber of Commerce • Which of the following best illustrates the indirect role of government? • A state park • A city’s fire department • The Tennessee Valley authority • Regulation of public utilities • All of the following are typical Chamber of Commerce activities except: • Educational programs • Demonstrating against new housing developments • Neighborhood clean-up campaigns • Lobbying for favorable business legislation • Which of the following is most likely NOT a nonprofit organization? • Church • Neighborhood association • Public school • Corner grocery store • Why are government controls needed on public utilities? Public Utilities • Are investor or municipal owned • Usually have no competition • Provide important public services • Are responsible for water and electric services

27. Community and Civic Organizations • Nonprofit Organization: business to promote its members’ collective interest, not seek financial gain (Bill Gates foundations) • Incorporate to take advantage of a corporation’s unlimited life and limited liability • If money remains after expenses are paid, the B.O.D. may apply to other projects

28. Cooperatives • Voluntary association of people who carry on an economic activity that benefits its members • Consumer Cooperatives: buy food and other necessities in bulk • Members donate time to the co-op • Members pay lower prices for goods • Service Co-ops: credit unions, offer services to its members at lower rates • Producer Co-ops: help members, farmers, promote or sell their products

29. Labor, Professional, and Business Organizations • Labor unions: represent workers’ interest and negotiate with management through collective bargaining • Professional association set standards for those in the profession and influence government policies on issues concern members’ interest (NCSS) • Business Associations: industries or trade associations that represent specific businesses (BBB)

30. Direct Role Agencies produce and distribute goods and services to consumers such as the TVA (electricity) or US Postal Service Gov’t Corp: Board of directors Congress’ money v. investors’ money Indirect Role: Regulates public utilities Grants money to people in form of Social Security and student financial aid Government

31. Nonprofit organizations Cooperative Labor union Collective bargaining Professional association Negotiations between representatives of labor and management Economic institution that works in a businesslike manner but does not seek financial gain Organization of workers formed to represent it members interest in various employment matters Group of people in a specialized occupation that works to improve the working conditions, skill levels, and public perceptions of the profession Voluntary association of people formed to carry on some kind of economic activity that will benefit its members Vocabulary Review Chapter 3 section 3

32. Vocabulary Review Chapter 3 section 3 • Nonprofit organizations • Cooperative • Labor union • Collective bargaining • Professional association

33. Jump Start Chapter 3 section 3 • Which of the following is an example of a service cooperative? • Greenville Teachers’ Credit Union • Association of Manufacturing Workers • Better Business Bureau • Mason Chamber of Commerce • Which of the following best illustrates the indirect role of government? • A state park • A city’s fire department • The Tennessee Valley authority • Regulation of public utilities • All of the following are typical Chamber of Commerce activities except: • Educational programs • Demonstrating against new housing developments • Neighborhood clean-up campaigns • Lobbying for favorable business legislation • Which of the following is most likely NOT a nonprofit organization? • Church • Neighborhood association • Public school • Corner grocery store • Why are government controls needed on public utilities? Public Utilities • Are investor or municipal owned • Usually have no competition • Provide important public services • Are responsible for water and electric services