Chapter 3 Business Organizations Economics and You Do you work at - PowerPoint PPT Presentation

Chapter 3 Business Organizations

Economics and You Do you work at a business? Belong to a church? Participate in a club? Chances are these institutions play a significant role in your life. Click the Speaker button to listen to Economics and You. 2

Introduction • There are three main forms of business organizations in the economy today – the sole proprietorship, the partnership, and the corporation.  • Each offers its owners significant advantages and disadvantages. Click the mouse button or press the Space Bar to display the information. 3

Sole Proprietorships • A sole proprietorship is a business run by one person. It is the smallest type of business organization in size, yet the most numerous and profitable. Click the mouse button or press the Space Bar to display the information. 4

Sole Proprietorships (cont.) • The advantages to sole proprietorships are: ease of start-up; ease of management; owner gets all the profits; business itself pays no income taxes; taxes only on the owner’s personal income; psychological satisfaction of owning one’s business; ease of closing the business. 5

Sole Proprietorships (cont.) • The disadvantages to sole proprietorships are: the owner has unlimited liability; it is hard to raise financial capital; owner may not be able to hire enough personnel or stock enough inventory to operate efficiently; owner may have limited managerial experience; hard to attract qualified employees; business has limited life and legally stops existing when the owner dies or sell the business. 6

Partnerships • A partnership is a business jointly owned by two or more persons. It is the least and has the second smallest proportion of sales and net income.  • General partnerships are a type of business in which all partners are involved in the management and finances. In a limited partnership, at least one partner is not involved in management. This partner may have helped to finance the business. Click the mouse button or press the Space Bar to display the information. 7

Partnerships (cont.) • Articles of the partnership document spell out how the partners divide up the profits or losses.  • The advantages of partnerships are: the ease of start-up; ease of management; no special taxes on a partnership; easier to raise capital through bank loans or new partner; larger size aids efficient operations; easier to attract skilled employees. Click the mouse button or press the Space Bar to display the information. 8

Partnerships (cont.) • The disadvantages of partnerships are: partners are responsible for the acts of each and every partner, except in a limited partnership where the limits are spelled out; limited life of partnerships ends if a partner leaves; potential for partner conflicts. Click the mouse button or press the Space Bar to display the information. 9

Corporations • A corporation is a business organization recognized by law as a separate legal entity with all the rights of an individual.  • Corporations receive a charter, or government permission to create a corporation, which includes details about stock ownership.  • Investors who buy common or preferred stock in a corporation become owners of the firm. Click the mouse button or press the Space Bar to display the information. 10

Corporations (cont.) • The advantages of corporations are: ease of raising capital; professionals may run the firm instead of the owners (shareholders); owners have limited liability; business’s life is unlimited; easy to transfer ownership.  • The disadvantages of corporations are; a charter is expensive; ownership and management are separated so shareholders have little say in running the business; corporate income is taxed twice; subject to government regulation. Click the mouse button or press the Space Bar to display the information. 11

Corporations (cont.) Figure 3.2 Figure 3.2 Stock Ownership Stock Ownership Click the mouse button or press the Space Bar to display the information. 12

Corporations (cont.) Figure 3.3 Figure 3.3 Ownership, Control, and Organization of a Typical Corporation Ownership, Control, and Organization of a Typical Corporation 13

Government and Business Regulation • Federal and state governments regulate interest rates and utility rates.  • State governments may offer industrial development bonds to help industries relocate or tax credits to draw investments.  Click the mouse button or press the Space Bar to display the information. 14

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Introduction • A business can grow in one of two ways.  • First it can grow by reinvesting some of its profits.  • A business can also expand by engaging in a merger – a combination of two or more businesses to form a single firm. Click the mouse button or press the Space Bar to display the information. 16

Growth Through Reinvestment • Business revenue can be used to invest in factories, machinery, or new technologies.  • Before reinvesting, a business must estimate its cash flow. The business first records its total sales and then subtracts all expenses, taxes, and depreciation. The result is the business’s net income. Click the mouse button or press the Space Bar to display the information. 17

Growth Through Reinvestment (cont.) • Depreciation is added back to net income to get cash flow, or the bottom line — the real measure of business profit.  • Business owners then decide whether part of the cash flow should be reinvested in the business to generate additional sales and more profits. Click the mouse button or press the Space Bar to display the information. 18

Growth Through Reinvestment (cont.) Figure 3.4 Figure 3.4 Click the mouse button or press the Space Bar to display the information. 19

Growth Through Mergers • When firms merge, one gives up its separate legal identity.  • A company may merge with another to grow faster; become more efficient; acquire or deliver a better product; eliminate a rival; or change its image.  • A horizontal merger is the joining of firms that make the same product. A vertical merger is the joining of firms involved in different stages of manufacturing or marketing. Click the mouse button or press the Space Bar to display the information. 20

Growth Through Mergers (cont.) Figure 3.6 Conglomerate Structure • A conglomerate is composed of four or more businesses, each making unrelated products, none of which is responsible for a majority of its sales. Click the mouse button or press the Space Bar to display the information. 21

Growth Through Mergers (cont.) Figure 3.6 Conglomerate Structure • A multinational is a corporation with manufacturing and service operations in several countries, which are subjected to each nation’s business regulations. Click the mouse button or press the Space Bar to display the information. 22

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Introduction • Most businesses use scarce resources to produce goods and services in hopes of earning a profit for their owners.  • Other organizations operate on a “not -for- profit” basis.  • A nonprofit organization operates in a businesslike way to promote the collective interests of its members rather than to seek financial gain for its owners. Click the mouse button or press the Space Bar to display the information. 24

Community and Civic Organizations • A nonprofit organizations is in business to promote its members’ collective interests, not to seek financial gain.  • Many nonprofit organizations incorporate to take advantage of a corporation’s unlimited life and limited liability  • If the nonprofit organization has money after its expenses are paid, its board of directors may apply the surplus to other projects that further the organization’s mission. Click the mouse button or press the Space Bar to display the information. 25

Cooperatives Figure 3.7 Figure 3.7 Cooperatives in the United States Cooperatives in the United States • A cooperative is voluntary association of people who carry on an economic activity that benefits its members. Click the mouse button or press the Space Bar to display the information. 26

Cooperatives • Consumer cooperatives buy food and other necessities in bulk. Members donate time to the co-op, and members pay lower prices for goods.  • Service cooperatives, such as credit unions, offer services to its members at lower rates.  • Producer cooperatives help members, such as farmers, promote or sell their products. Click the mouse button or press the Space Bar to display the information. 27

Labor, Professional, and Business Organizations • Labor unions represent workers’ interest and negotiate with management through collective bargaining..  • Professional associations set standards for those in the profession and influence government policies on issues concerning members’ interest.  • Business associations are industries or trade associations that represent specific kinds of businesses. Some business associations, such as the Better Business Bureau, help protect the consumer. Click the mouse button or press the Space Bar to display the information. 28