Chapter 3 Business Organizations

Types of Business Organizations

sole proprietorship, partnership, and corporation

Sole Proprietorship

an unincorporated business owned and operated by one person

Sole Proprietorship Advantage and Disadvantage

Advantage - ease of starting up
Disadvantage - owner has unlimited liability

Partnership

an unincorporated business owned by two or more people

Types of Partnership

general and limited

Limited Partnership

form of partnership where one or more partners are active in the daily running of the business and where liability for the partnership's debt is restricted to the amount

Articles of Partnership

a written agreement made by partners in forming their business

Partnership Advantages and Disadvantages

Advantage - ease of establishment
Disadvantage - partner responsible for acts of all other partners

Corporation

a business created under a government charter

Corporation Advantage and Disadvantage

Advantage - ease of raising financial capital
Disadvantage - difficulty of getting

5 Types of Corporation

1) Scorp
2) Government-owned
3) Cooperative
4) Franchise
5) Non-profit

Scorp

a business that enjoys advantages of a corporation without corporate taxes

Government-owned

one that has been created to provide services that private enterprises are unable or willing to offer

Cooperative

a nonprofit association performing some kind of economic activity for the benefit of its members

Franchise

a license to operate an individually owned business in a specific geographic area as if it were part of a large chain

Nonprofit Organization

an economic institution that operates like a business but does not seek financial gain

Common Stock

- receives 1 vote per share
- elect board of directors
- hire professional management to run business

Preferred Stock

- receive 1st right to dividends
- have priority on assets if business closes
- non voting member

Proxy

a written authorization instructing others how to vote at a stockholders meeting

Bankruptcy

court-granted permission to an individual or business to cease or delay payment on some or all debts for a limited amount of time

Charter

written government approval to establish a corporation; includes company name, address, purpose of business, number of shares of stock, and other features of the business

Stock

certificate of ownership in a corporation; common or preferred stock

Stockholder / Shareholder

person who owns shares in a corporation

Dividend

check paid to stockholders, usually quarterly, representing portion of corporate profits

Bond

formal contract to repay borrowed money at regular future intervals

Principal

amount borrowed when getting a loan or issuing a bond

Interest

payment made for the use of borrowed money; usually paid at periodic intervals for long-term bonds or loans

Double Taxation

feature of taxation that allows stockholders' dividends to be taxed both as corporate profit and as personal income

Types of Mergers

horizontal and

Horizontal Merger

a combination of 2 or more firms producing the same kind

Vertical Merger

a combination of firms involved in different steps of manufacturing or marketing

5 Reasons for Company Mergers

1) Grow faster
2) Increase efficiency
3) Acquire new product lines
4) Eliminate a rival
5) Change in corporate image

Merger

combination of two or more business enterprises to form a single firm

Income Statement

report showing a business's sales, expenses, and profits for a certain period

Net Income

measure of business profits determined by subtracting all expenses; including taxes from revenues

Depreciation

gradual wear on capital goods during production

Cash Flow

total amounts of new funds the business generates from operations; broadcast measure of profits for a firm, includes both net income and non-cash charges

Conglomerate

firm with four or more businesses making unrelated products, with no single business responsible for a majority of its sales

Multinational

corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries

3 Types of Cooperatives

1) Consumer
2) Service
3) Producer

Credit Union

nonprofit service cooperative that accepts deposits, makes loans, and provides other financial services

Labor Union

organization that works for its members' interests concerning pay, working hours, health coverage, fringe benefits, other job related matters

Collective Bargaining

process negotiation between union management representation over benefits, pay, and job-related matters

Professional Association

nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, and public perceptions of its profession

Chamber of Commerce

nonprofit organization of local businesses whose purpose is to promote their interests

Better Business Bureau

business-sponsored nonprofit organization providing information on local companies to consumers

Public Utility

company providing essential services such as water and electricity to consumers, usually subject to some government regulations