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Business Organizations. Ch.9. Entrepreneur. A person who is willing to start their own business and manage it. Sole Proprietorship. One owner Most common type of business organization. B. Reasons why people own their own business. Easy to organize Easy to make decisions
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Entrepreneur • A person who is willing to start their own business and manage it.
Sole Proprietorship • One owner • Most common type of business organization
B. Reasons why people own their own business • Easy to organize • Easy to make decisions • Receive all profits • Pride in ownership
C. Disadvantages • Limited resources • Unlimited Liability a. can lose all personal possessions to pay off business debts.
3. Limited life a. when you die the business dies 4. 70% of all new businesses fail in the 1st 5 years.
II. Partnerships (2 or more) • Advantages 1. Similar to Sole Proprietorship 2. Sharing responsibility 3. Sharing Skills
B. Disadvantages 1. Must be able to work well with partner 2. Unlimited liability a. must pay all debts if partner dies
III. Corporations A. Owned by investors called stockholders
B. Corporation acts like an individual 1. Buy and sell property 2. Make contracts 3. Can be sued
C. In order to start the business, it must have a charter from the state or federal government.
E.Advantages of a Corporation 1. Limited Liability a. You can only lose your investment in the corporation. 2. Easier to raise large amounts of capital a. sell stocks to stockholders
3. Unlimited Life of corporation a. Even if the founder of the corporation dies; corporation will live.
4. Easy to transfer ownership of stock 5. Can retrieve dividends=extra payments from profits
F. Disadvantages 1. Stockholders have no direct control over decisions.
2. Hard to organize a.must have charter – i. legal permission by gov’t to form corporation b. must have legal advice 3. There is little pride in ownership
4. Double Taxation a. Company pays tax on profits b. Stockholders pay tax on dividends
IV. Mergers • Businesses joining together A.Horizontal Mergers 1. Joining together of companies at the same level of production
2. Example a. Burger King b. McDonald’s c. Jack in the Box
3. This type of merger would eliminate competition 4. New company would control price
5. This would result in a monopoly. a. a form of market organization in which there is only one seller
6. These mergers are regulated and controlled by federal government through anti-trust laws. a.Laws designed to prevent monopolies
B. Vertical Mergers 1. One company buys up all of the factors of production. 2. Objective a. For company to cut down on its costs of production.
3. Example: Burger King a. Factors of Production i. Ranch for cattle (meat) or chicken ii.Wheat farm (bread) iii.Farm for potatoes, tomatoes, etc.
b. Burger King would cut down on cost of producing their product.
C. Conglomerates 1. Companies that join together that are completed unrelated.
2. Example Altria Tobacco Cookies Cheese Coffee Lunchmeat/Hotdogs Cereal
Altria Phillip Morris, Kraft, Maxwell House, Nabisco, Oreo, Oscar Meyer, Philadelphia, Post, & Tang
