Presentation Transcript

1. Economics

   Chapter 3
2. Definitions Proprietorships – most common form of a business organization. This is a business owned by one person, these are the smallest in size. Partnership – business is owned jointly by two or more persons. Shares many of the same qualities as above but usually larger. Corporation– a form of business (that accounts for 1/5 of all businesses & 90% of all sales) organization recognized by law as a separate legal entity having all the rights of an individual.
3. Forming a Corporation Formal Legal Arrangement 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.
4. Create a Chart
5. Sole Proprietorship Ease to start up Ease of Management Owner enjoys profit of success Does not have to pay Income Tax on Business, if not a separate entity. Psychological Satisfaction Unlimited Liability Difficulty to Raise Financial Capital Size and Efficiency Minimum Inventory Few Employees Limited Managerial Experience Difficulty attracting Qualified Personnel Limited Life – If owner dies or is seriously injured Advantages Disadvantages
6. Partnerships Each Partner is responsible for all partners action (except limited partnership where the limits are spelled out) Agreements need to be made to avoid disadvantages similar to proprietorship Potential for partner conflicts. Ease to start up Ease of Management Lack of Special Taxes on Partnership Attract financial capital more easily than proprietorships Slightly larger , makes more efficient operations Easier to attract top talent into organization Advantages Disadvantages
7. Corporations Ease of Raising Capital Professionals may run the firm instead of owners (shareholders) Owners have limited liability Business’s Life is Unlimited Easy to transfer ownership 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 Advantages Disadvantages
8. Government and Business Regulations 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.
9. Growth through Investments 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 subtracts all expenses, tax and depreciation, The result is the business’s net income. Depreciation is added back to net income to get cash flow, or the bottom line – the real measure of business profit. Owners decide to if cash flow should be reinvested to business to generate additional sales and more profit.
10. Growth Through Mergers When firms merge, one gives up 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. A conglomerate is composed of 4 or more businesses, each making unrelated products, none of which is responsible for a majority of its sales. A multinational is a corp. with manufacturing and service operations in several countries, which are subjected to each nations business regulations
11. Community and Civic Organizations A nonprofit organization is in business to promote its members’ collective interests, not to seek financial gain. Many Non-Profits take advantage of a corporations unlimited life and limited liability. If any money is left after expenses are paid, its board of directors may apply the surplus to other projects that further the organizations mission.
12. Cooperatives A cooperative is a 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, 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
13. Labor, Professional and Business Organizations Labor Unions represent workers’ interests and negotiate with management through collective bargaining. Professional associations set standards for those in the profession and influence government policies on issues concerning members’ interests. Business associations are industries or trade associations that represent specific kids of businesses. Some business associations, such as Better Business Bureau, help protect the consumer.
14. Government Plays a direct role in the economy when its agencies produce and distribute goods and services to consumers such as the Tennessee Valley Authority (electricity) and the US Postal Service (stamps and mail delivery). Gov’t Corps have board of directors, but Congress’s money rather than investors’ money support their work. Play an indirect role when it regulates public utilities or when it grants money in the form of Social Security and student financial aid.