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Microeconomics
Business Organizations
Microeconomics: Overview
• Study of individual businesses and households• SMALL scale decisions
– A firm’s business decisions about employees– Entrepreneurs’ decisions about how to organize their
businesses• Supply, demand, and prices in the market of a
specific product– Oil Market– Real estate market
• Marginal cost and marginal revenue for a business
Business Organizations
• Sole Proprietorship
• Partnership– General– Limited
• Corporation
• ALL of these have advantages and disadvantages for you, the entrepreneur
Sole Proprietorship• ADVANTAGES• Easiest to organize• No separation of
ownership and control• Owners run business• Lower taxes than
corporations
• DISADVANTAGES• No specialization• Unlimited liability• Limited access to
financial capital• Limited life of firm
Partnership• ADVANTAGES• More specialization
than sole proprietor• Easier to raise
financial capital than sole proprietor
• Lower taxes than corporation
• DISADVANTAGES• Unlimited liability• You share profits with
partner• Possible conflicts with
partner• Possible instability if
partner quits or dies
Corporations• Created by corporate charter• Legally a “living thing”• Owned by shareholders
– Shareholders own stock– They can profit in two ways
• Dividends: divided profit of corporation• Capital gains: profit by selling stock at higher price
• Managed by board of directors– Elected by shareholders
Corporation
• ADVANTAGES• Limited liability
– Owners not responsible for corporate debt
• Specialization• Raising financial capital
– Selling stock– Corporate bonds
• Professional management• Unlimited life
• DISADVANTAGES• Harder to start• Complicated decision-
making• Less control for owners
(shareholders)– Board of directors is elected
by shareholders– Board runs corporation
• Double taxation– Corporate income taxes for
corporation – Capital gains taxes on
shareholders’ dividends
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