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Chapter 8.1 notes
Business Organization
Sole Proprietorship
a business run by one person smallest type of business organization most numerous but least profitable
Advantages of a Sole Proprietorshipease of start-upease of managementowner gets all the profitstaxes paid only on the owner’s personal
incomepsychological satisfaction of owning
one’s business/ having controlease of closing the business
Disadvantages of a sole proprietorship owner has unlimited liability – owner is
personally and fully responsible for all losses and debts of the business
Limited funds owner may not be able to hire enough
personnel or keep inventory limited managerial experience hard to attract qualified employees business has limited life – firm legally
ceases to exist when the owner dies or sells the business.
Example
Mary Kay Ash – Mary Kay Inc.Was passed up for a promotion,
decided to start own business to reward women
By 2005 was a global company with $2 billion in sales
Assignment
Pg. 231 #’s 2-5 Write the question!
Chapter 8.2 notes
Partnerships
Partnerships business jointly owned by two or
more persons. Types: general partnership – all partners
are responsible for the mgmt and financial obligations
limited partnership – at least one partner is not active in the daily running of the business.
Cont’d
Limited liability partnership (LLP) – all partners are limited and not responsible for debts or liabilities of other partners
Advantages of a Partnership
ease of start-upease of mgmtlack of special taxeseasier to raise capital through bank
loans or new partnerlarger size aids efficient operationseasier to attract talented employees
Disadvantages
Unlimited liability - partners are responsible for the acts of every partner except in a limited partnership
limited life - if a partner leaves or dies it must be dissolved and reorganized
potential for conflict
Examples
Law firmsAccounting firmsDoctors officesInteresting fact: most partnerships bring
in less than $25,000 a year
8.3/8.4 notes
Corporations
A business owned by stock-holders Stockholders/shareholders – investors
who become owners of the firm If profitable, may pay dividends
Advantages of a corporation
ease of raising capital professionals usually run firm owners have limited liability Unlimited life of corp. Easy to transfer ownership (buying/selling
stock)
Disadvantages of a corporation
Start-up cost/effort Little control of business double taxation subject to gov’t regulation
Business Consolidation
Horizontal merger – produce same product Ex: two banks; Reebok and Adidas
Vertical merger – different steps of production Ex: car co and tire co;
Conglomerate – 4 or more merge that are unrelated
Franchise
Business that licenses rights to sell it’s products to individual owners
Examples: McDonald’s, KFC/Taco Bell, Subway
Advantages
Provides good training and productsPays for advertising
Disadvantages
Can be expensiveShare profitsHave to follow rules
Non-profit Organization
Aims to benefit societyExamples: schools, churches, Salvation
Army, Red Cross
Cooperatives
Operated for benefit of owners who are also customers
3 Types: Consumer, Producer, Service
Word bank for Quiz on Ch. 8!!!!Sole proprietorshipPartnershipCorporationStockCooperativeConglomerateFranchiseUnlimited liabililtyUnlimited lifeMultinational BondNon-profit organizationHorizontal mergerVertical mergerLimited liability
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