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  1. Chapter 3 Business Organizations Splash Screen

  2. CHAPTER INTRODUCTION SECTION 1Forms of BusinessOrganization SECTION 2Business Growth andExpansion SECTION 3Other Organizations CHAPTER SUMMARY CHAPTER ASSESSMENT Click a hyperlink to go to the corresponding section.Press the ESC key at any time to exit the presentation. Contents

  3. 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. Chapter Introduction 1

  4. Chapter Objectives Section 1: Forms of Business Organization • Describe the characteristics of the sole proprietorship.  • Understand the advantages and disadvantages of the partnership.  • Describe the structure and features of the corporation. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 2

  5. Chapter Objectives Section 2: Business Growth and Expansion • Explain how businesses can reinvest their profits to grow and expand.  • Recognize the reasons that cause firms to merge.  • Identify two different types of mergers. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 3

  6. Chapter Objectives Section 3: Other Organizations • Describe nonprofit organizations.  • Explain the direct and indirect role of government in our economy. Click the mouse button or press the Space Bar to display the information. Chapter Introduction 4

  7. Click the mouse button to return to the Contents slide. End of Chapter Introduction

  8. Study Guide Main Idea Businesses may be organized as individual proprietorships, partnerships, or corporations.  Reading Strategy Graphic Organizer As you read about business organizations, complete a graphic organizer similar to the one on page 57 of your textbook to explain how the three types of business organizations differ from one another. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 57 of your textbook. Section 1-1

  9. Study Guide (cont.) Key Terms • sole proprietorship  • stock  • stockholder  • shareholder  • dividend  • bond  • principal  • interest  • double taxation • proprietorship  • unlimited liability  • inventory  • limited life  • partnership  • limited partnership  • bankruptcy  • corporation  • charter  Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 57 of your textbook. Section 1-2

  10. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Describe the characteristics of the sole proprietorship.  • Understandthe advantages and disadvantages of the partnership.  • Describe the structure and features of the corporation.  Applying Economic Concepts Unlimited LiabilityHow is personal liability affected by the type of business owned? Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 57 of your textbook. Section 1-3

  11. 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. Section 1-4

  12. Did You Know? • In 1997 Dun & Bradstreet reported that corporation start-ups increased by 2 percent to reach a new high of 798,917. New corporations in Florida and New York represented 25 percent of that total. Click the mouse button or press the Space Bar to display the information. Section 1-4

  13. 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. Section 1-5

  14. 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. Section 1-6

  15. 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. Section 1-6

  16. Discussion Question Why do you think so many business owners are sole proprietors despite the fact that they hold unlimited liability? Answers will vary. Students should support their opinions with a rationale. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  17. 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. Section 1-10

  18. 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. Section 1-10

  19. 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. Section 1-10

  20. Discussion Question Which type of partnership would you favor—general or limited? Answers will vary. Students should support their positions with a rationale. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  21. Corporations • Acorporation 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. Section 1-15

  22. 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. Section 1-15

  23. Corporations (cont.) Click the mouse button or press the Space Bar to display the information. Section 1-17

  24. Corporations (cont.) Section 1-19

  25. Discussion Question Who are really the owners of a corporation? Stockholders Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  26. GovernmentandBusinessRegulation • 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. Section 1-23

  27. Discussion Question What are some recent examples of business development incentives in your state or community? Answers will vary. Students should describe what the proposed benefit offers. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  28. Section Assessment Main Idea Using your notes from the graphic organizer activity on page 57, explain why partnerships are able to attract more capital than sole proprietorships. partnerships are bigger, better established, have a better chance of getting a bank loan; new partners bring financial capital Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 1

  29. Section Assessment (cont.) Identify the characteristics and organization of the sole proprietorship. owned by one individual; all decisions made by owner; owner receives all profits, responsible for debts, losses; limited life Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 2

  30. Section Assessment (cont.) Discuss the advantages and disadvantages of the partnership. advantages: ease of establishment and management, no special taxes, can attract financing and top talent, more efficient; disadvantages: all partners equally responsible for business losses (except in limited partnerships), limited life, potential conflict among partners Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 3

  31. Section Assessment (cont.) Discuss the structure and features of the corporation. It is a separate legal entity with all the rights of the individual. It possesses a charter and shares of stock that are sold to investors. Investors purchase common stock or preferred stock. Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 4

  32. Section Assessment (cont.) Drawing Conclusions When a corporation wants to introduce a potentially profitable but risky product, it frequently sets up a separate company that has its own corporate structure. Why do you think the corporation does this? limited liability–the first corporation limits its exposure by setting up a separate corporation Click the mouse button or press the Space Bar to display the answer. Section 1-Assessment 6

  33. Section Close Discuss which business form you think is the most important for the American economy. Section 1-Assessment 7

  34. Click the mouse button to return to the Contents slide. End of Section 1

  35. Study Guide Main Idea Businesses grow through merging with other companies and by investing in the machinery, tools, and equipment used to produce goods and services.  Reading Strategy Graphic Organizer As you read the section, complete a graphic organizer similar to the one on page 68 of your textbook by comparing a vertical merger to a horizontal merger. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Section 2-1

  36. Study Guide (cont.) Key Terms • merger  • income statement  • net income  • depreciation  • cash flow  • horizontal merger  • vertical merger  • conglomerate  • multinational Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Section 2-2

  37. Study Guide (cont.) Objectives After studying this section, you will be able to:  • Explain how businesses can reinvest their profits to grow and expand.  • Recognize the reasons that cause firms to merge.  • Identify two different types of mergers.  Applying Economic Concepts Business GrowthBusinesses can grow by reinvesting their profits in themselves, or they can combine with another business. What influences growth? Click the Speaker button to listen to the Cover Story. Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 68 of your textbook. Section 2-3

  38. 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. Section 2-4

  39. Did You Know? • The federal government’s Bureau of Economic Analysis reported that, in contrast to the American public’s suspicions, U.S.-based multinational companies do not establish most of their manufacturing affiliates in low-wage countries. In 1996, 87 percent of U.S. multinational affiliates’ employment was reported in relatively high-wage countries, primarily in Europe. Click the mouse button or press the Space Bar to display the information. Section 2-4

  40. 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. Section 2-5

  41. 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. Section 2-5

  42. Growth Through Reinvestment (cont.) Click the mouse button or press the Space Bar to display the information. Section 2-6

  43. Discussion Question What do you predict may happen when a business has little or no cash flow? Answers will vary. Students should indicate that without additional machinery and newer technologies, the business will eventually lose business to its competitors. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

  44. 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. Section 2-9

  45. 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. Section 2-9

  46. 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. Section 2-9

  47. Discussion Question Why have some multinational companies been criticized? Answers may include: paying low wages to workers, exporting scarce natural resources, driving out local businesses. Discuss with students that economists believe the advantages of multinationals outweigh the disadvantages. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

  48. Section Assessment Main Idea Using your notes from the graphic organizer activity on page 68, explain how mergers improve efficiency. Mergers can diminish cost and increase buying power. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 1

  49. Section Assessment (cont.) Describehow a firm can generate funds internally to grow and expand. A firm can reinvest revenue from sales into the company in the form of new plants, equipment, and technologies. Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 2

  50. Section Assessment (cont.) Identifyfive reasons why firms merge. grow faster, increase efficiency, acquire new product lines, eliminate rivals, or change corporate image Click the mouse button or press the Space Bar to display the answer. Section 2-Assessment 3