Chapter 8 Notes

1. Chapter 8 Notes Entrepreneurs and Business Organizations

2. Sole Proprietorship • Most common form of Business Org. • A business owned and managed by a single individual • Advantages 1. simple to establish, easy to form and dissolve 2. relatively few regulations 3. sole receiver of profits 4. full control 5. profits are taxed only once

3. Sole Proprietorship (cont.) • Disadvantages • High degree of responsibility • Owner has unlimited liability • Limited ability to raise funds • Limited talents available to make business decisions • Limited life of business • Limited access to resources (physical and human)

4. General Partnership • Business owned by two or more people • All partners are fully responsible for all liabilities

5. Limited Partnership • Only one partner is required to be a general partner-others only contribute money (limited partners)

6. Limited Liability Partnership • All Partners are limited partners- functions like a general partnership except all are limited from personal liability.

7. Partnerships- Advantages • Easy to est.- few gov’t regulations • Benefits of specialization can be realized • Larger pool of capital and attract more qualified employees • Risks are shared • Profits are only taxed once

8. Partnerships- Disadvantages • Unlimited liability (for general partners) • Responsible for the actions of other partners • Potential for conflict- decision making can be complex and frustrating

9. Corporations • A legal entity owned by individual stockholders, a legal entity in the eyes of the law. • Closely Held Corp.- issues stock to only a few people, often family members • Publicly Held Corp.- sells stock on the open market=> NYSE

10. Advantages (corporations) • Limited liability- individual investors do not carry responsibility for corporate actions • Transferable ownership • Ability to attract capital (by selling stock) • Long life • More potential for growth than any other business form

11. Disadvantages (Corporations) • Double taxation (Corporation income is taxed + personal income is taxed) • Expensive /complicated / difficult to set up -have to get Certificate of Incorporation and approval from state officials. • Owners have little say in how business is run => lose control • Heavily regulated (more regulations than any other business form)

12. Corporate Combinations • Horizontal- join two or more firms competing in the same market with the same good/service (ex.- AT&T merging with T-Mobile) • Vertical- join two or more firms involved in different stages of producing the same good/service (ex.- GM buys out Michelin Tires or a steel plant).

13. Corporate Combinations • Conglomerates- firm that buys other companies that produce unrelated goods/services. (ex- Walt Disney Corp., Proctor and Gamble, 3M) • MultiNational Corporations (MNC’s)- corporations that operate in more than one country at a time. (ex- CocaCola, Nike, Sony)

14. MNC’s • Advantages 1. Provide jobs and products worldwide 2. spread technology and production methods 3. produces new tax revenues for host country • Disadvantages 1. too much influence on culture/politics of host country 2. low wages/poor work conditions

15. Franchises • Business established by an agreement that allows an individual or group to market a company’s products/services in return for a fee (parent company= franchiser//Ex-Fast food restaurants)

16. Franchise Advantages • Comes with built in reputation • Provided support- training, national advertising, financial support, centralized buying power, standardized quality • Quick way for expansion of company • Allows owner to be his/her own boss

17. Franchise Disadvantages • Sacrifice some freedom—parent company imposes restrictions on owner • Danger of over expanding (i.e. Starbucks) • May not have enough capital to cover start-up costs • Franchising fee/Royalties