Economics - Role of Business

Sole Proprietorship

owned & operated by one person

Unlimited Liability

personal assets of the owner can be used to recover any losses incurred by the business

Partnership

owned & operated by two or more people

Corporation

owned by individual shareholders with stock options, operates as an artificial person

Board of Directors

group of individuals who meet during the year to make important decisions about the company

Stockholders/Shareholders

individuals who own a portion of the corporation

Double Taxation

stockholders have to pay taxes on dividends even though the corporation has paid taxes on its earnings

Franchise

semi-independent company

Common Stock/Shares

a certificate showing ownership in a corporation for buying and selling commodities/ownership is divisible into portions

Brokerage/Trade Commission

the fee paid for the service of a broker or an online trading service

Interest

money paid to investors for the use of their money (cost of borrowing money)

Dividend

the portion of corporate profits paid to stock holders

Bond

a loan from a corporation or a gov. to a specific time & date

Mutual Fund

a company which pools the funds of small investors and then invests the money for them

Bull Market

a steady rise in the stock market over a period of time

Bear Market

a steady drop in the stock market over a period of time

Dow Jones (The Dow)

average of 30 industrial stocks measuring how whole market performs

Perfect Competition

many sellers / identical / easy to enter / price taker

Monopolistic Competition

many sellers / similar but not identical / easy to enter / price taker

Oligopoly

few sellers / identical or slightly differentiated / difficult to break in / price maker

Price Wars

lowering price to drive down competition

Collusion

firms work together as a monopoly to drive out new competition & govt regulates to force competition

Monopoly

one seller / unique (no sub) / extremely difficult / price maker

Natural/Government Monopoly

only pay cost production cheaper; consumer (makes no profit)

Geographical Monopoly

based on location or franchise (gas station network)

Technological Monopoly

patents based on tech breakthrough (monopoly: patent secures)

Patent

your exclusive rights to sell for certain period of time

Sole Proprietorship Advantages

easy to form / full control decision / fewer govt regulations / keep all profit

Sole Proprietorship Disadvantages

unlimited personal liability / lack of resources / solely responsible / high failure

Partnership Advantages

simple startup / specialized talents / shared decision making / larger pool of resources

Partnership Disadvantages

unlimited personal liability / potential for conflicts / lack of permanence

Corporation Advantages

easy to raise funds / long life (longevity) / flexibility in shares / limited liability

Corporation Disadvantages

double taxation / expensive startup / complex organization / no control/power

Royalties

a fee required to be paid to use a trademark that a franchisee has to pay

Franchisor

the seller of a franchise

Franchisee

the buyer of the franchise

Franchisee Advantages

usually protected from lawsuits from franchisor / able to negotiate assurance that other franchises don’t crowd the territory / seen as independent merchants

Franchisee Disadvantages

franchisee has to pay franchisor royalties / also pay reimbursement fees for training/advisory services / quality control is hard to take care of / may face serious consequences for terminating the contract

Owners/Shareholders

owners of the corporation

Board of Directors (Role)

that select CEO & CFO

CEO & CFO

run company

Corporate Officers

who hire presidents/vice presidents

Department Heads

below the presidents and vice presidents

Employees

workers at bottom level