Chapter 3

Business Organizations

Jump Start Chapter 3 section 11. What is the most common form of business organization in the United States?

A. Sole proprietorship B. PartnershipC. CorporationD. Limited partnership

2. What is the main strength of the corporate form of business organization?A. Ease of rising financial capital B. Ease of establishment C. Ease of management D. Freedom from business income taxes?

3. A government document granting permission to create a corporation is called a A. DividendB. CharterC. BondD. Proxy

4. Basic ownership of a corporation, including voting rights, takes form of A. BondsB. Preferred stockC. PartnershipsD. Common stock

5. All of the following are strengths of the partnership form of business organization EXCEPT:

A. Ease of management B. Limited lifeC. Ease of establishment D. Lack of special taxes

Sole Proprietorship

• A business that is owned and managed by one individual who receives all the profits and bears all the losses.

• Most common form of business organization BUT the smallest in size.

• Most numerous and profitable

Partnerships

• A business that is owned and managed by two or more individuals who receive all the profits and bear all the losses.

• Numerous among business organizations • Second smallest proportion of sales and net income

• General-– All partners are responsible in management and finances

• Limited- – One partner is NOT active in daily business but gave money to

start the business • Articles of partnership: documents that spell out how the

partners divide up the profits or loses

Corporations

• A business that is owned and operated by stockholders and has rights and responsibilities as if it were a person

• 90% of all businesses• Organized and recognized by law• Can buy, sell, enter into contracts, and be sued• Harder to start – need permission from the

government– Includes details about Stock ownership

•Common Stock

•Represents basic ownership of a corporation

•Stock holders receive voting rights

•No dividend received

•Both:

•Ownership certificates in a corporation

•Purchased by investors called stockholders or shareholders

•Provide ownership rights

•Preferred Stock

•Dividend guaranteed

•Stock holders receive no voting rights

•Stockholders receive dividend before common stockholders receive theirs

•SH: receive investment back before common SH

Figure 3.3Ownership, Control, and Organization of a Typical CorporationFigure 3.3Ownership, Control, and Organization of a Typical Corporation

Benefits of the Three • Sole Proprietorship

– Easy to start– Ease of management – Control over profits– Personal freedom– Lower taxes– Ease of closing the

business – Psychological benefits: own

you own business • Partnership

– Easier to raise financial capital (through bank loans or new partner)

– Ease of management – Partners may combine

managerial skills– Lower taxes– Easier to attract qualified

workers

• Corporation– Limited Liability– Greater financial capital –

stocks, bonds– Unlimited life– Specialized management– Easy transfer of ownership

Cost of the Three • Sole Proprietorship

– Unlimited liability – owner responsible for all losses and debts

– Difficulty in raising financial capital

– Difficulties hiring (qualified) personal/stock enough inventory

– Management knowledge may be limited

– Limited Life/stops existing with death or owner or owner sells the business

• Partnership– Unlimited liability– Shared profits– Possible conflicts between

partners– Limited life

• Corporation– Ownership and management

are separated/shareholders have little say in running the business

– Increased taxation– Difficulty in starting– Increased governmental

control

Government and Business Regulations

• Federal and state regulate interest rates and utility rates

• State may offer industrial development bonds to help industries – Relocate or tax credits to draw investors

Jump Start Chapter 3 section 11. What is the most common form of business organization in the United States?

A. Sole proprietorship B. PartnershipC. CorporationD. Limited partnership

2. What is the main strength of the corporate form of business organization?A. Ease of rising financial capital B. Ease of establishment C. Ease of management D. Freedom from business income taxes?

3. A government document granting permission to create a corporation is called a A. DividendB. CharterC. BondD. Proxy

4. Basic ownership of a corporation, including voting rights, takes form of A. BondsB. Preferred stockC. PartnershipsD. Common stock

5. All of the following are strengths of the partnership form of business organization EXCEPT:

A. Ease of management B. Limited lifeC. Ease of establishment D. Lack of special taxes

Review Vocabulary Chapter 3 Section 1

1. Sole proprietorship

2. Limited life

3. Limited partnership

4. Corporation

5. Bankruptcy

A. A business owned and run by one person

B. Business organization in which at least one partner is not active in the daily running of the business

C. business organization recognized by law as a separate legal entity having all the rights of an individual

D. A firm ceases to exist when the owner dies, quits, or sells the business

E. A court-granted permission to an individual or business to cease or delay debt payments

Review Vocabulary Chapter 3 Section 1

1. Sole proprietorship (A business owned and run by one person)

2. Limited life (A firm ceases to exist when the owner dies, quits, or sells the business)

3. Limited partnership (Business organization in which at least one partner is not active in the daily running of the business)

4. Corporation (business organization recognized by law as a separate legal entity having all the rights of an individual)

5. Bankruptcy (A court-granted permission to an individual or business to cease or delay debt payments)

Business Growth and Expansion

Jump Start Chapter 3 section 2

1. A corporation that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales, is called

A. MultinationalB. Horizontal corporation C. Conglomerate D. Vertical merger

2. Horizontal Merger involveA. Two or more firms in different countriesB. Two or more firms that produce the same kind of project C. Two or more firms involved in different steps of manufacturing or marketing D. Two or more firms that produce different products

3. Which of the following statements are true?A. All conglomerates are multinational B. All multinationals are conglomeratesC. A conglomerate is another term for a multinational D. A multinational is often a conglomerate

4. Which are important for their ability to move resources, products, and financial capital across national boundaries with relative ease?

A. CorporationsB. Conglomerates C. MergersD. Multinationals

5. What is a major reason for conglomerates mergers?A. Diversification B. Multinationals C. Unlimited lifeD. Conglomeration

Growth through Reinvestments

• Business revenue can be used for – Investment in factories – Machinery – Technologies

• Before reinvestments:– Must estimate its cash flow. – First records its total sales and then subtracts all

expenses, taxes, and depreciation = net income – Net income + depreciation = cash flow (or the bottom

line) real measure of business profit. • Decide to reinvest part of cash flow or addtional

sales and more profits

Figure 3.4Figure 3.4

Growth Through Mergers

• Firms merge, one gives up it separate legal identity

• Company may merge with another to– Grow faster – Become more efficient – Acquire or deliver a better product – Eliminate a rival – Change its impage

Growth through Mergers

• Horizontal mergers: joining of firms that make the same product (Nextel and Sprint)

• Vertical Merger: joining of firms involved in different stages of manufacturing or marketing

Growth through Mergers

• Conglomerate: composed of four or more businesses– Marketing unrelated

products – None are responsible for a

majority of sales

• Multinational: corporation with manufacturing and service operations in several countries– Subject to each nation’s

business regulations

Chapter 3 section 2

1. Merger

2. Net income

3. Depreciation

4. Multinational

5. Vertical merger

A. A non-cash charge a firm takes for the general wear and tear on its capital goods

B. A corporation that has operations in a number of different countries

C. Determined by subtracting expenses, including taxes, from revenue

D. Business combination of firms involved in different steps of manufacturing or marketing

E. A combination of two or more businesses to form a single firm

Review Vocab. Chapter 3 section 2

1. Merger (Voluntary association of people formed to carry on some kind of economic activity that will benefit its members)

2. Net income (Determined by subtracting expenses, including taxes, from revenue)

3. Depreciation (A non-cash charge a firm takes for the general wear and tear on its capital goods )

4. Multinational (A corporation that has operations in a number of different countries)

5. Vertical merger (Business combination of firms involved in different steps of manufacturing or marketing)

Jump Start Chapter 3 section 2

1. A corporation that has at least four businesses, each making unrelated products, none of which is responsible for a majority of its sales, is called

A. MultinationalB. Horizontal corporation C. Conglomerate D. Vertical merger

2. Horizontal Merger involveA. Two or more firms in different countriesB. Two or more firms that produce the same kind of project C. Two or more firms involved in different steps of manufacturing or marketing D. Two or more firms that produce different products

3. Which of the following statements are true?A. All conglomerates are multinational B. All multinationals are conglomeratesC. A conglomerate is another term for a multinational D. A multinational is often a conglomerate

4. Which are important for their ability to move resources, products, and financial capital across national boundaries with relative ease?

A. CorporationsB. Conglomerates C. MergersD. Multinationals

5. What is a major reason for conglomerates mergers?A. Diversification B. Multinationals C. Unlimited lifeD. Conglomeration

Other Organizations

Jump Start Chapter 3 section 31. Which of the following is an example of a service cooperative?

A. Greenville Teachers’ Credit Union B. Association of Manufacturing Workers C. Better Business Bureau D. Mason Chamber of Commerce

2. Which of the following best illustrates the indirect role of government?A. A state park B. A city’s fire department C. The Tennessee Valley authority D. Regulation of public utilities

3. All of the following are typical Chamber of Commerce activities except:A. Educational programs B. Demonstrating against new housing developments C. Neighborhood clean-up campaigns D. Lobbying for favorable business legislation

4. Which of the following is most likely NOT a nonprofit organization?A. Church B. Neighborhood association C. Public school D. Corner grocery store

5. Why are government controls needed on public utilities? Public UtilitiesA. Are investor or municipal ownedB. Usually have no competition C. Provide important public services D. Are responsible for water and electric services

Community and Civic Organizations

• Nonprofit Organization: business to promote its members’ collective interest, not seek financial gain (Bill Gates foundations)– Incorporate to take advantage of a

corporation’s unlimited life and limited liability – If money remains after expenses are paid, the

B.O.D. may apply to other projects

Cooperatives

• Voluntary association of people who carry on an economic activity that benefits its members – Consumer Cooperatives: buy food and other

necessities in bulk • Members donate time to the co-op • Members pay lower prices for goods

– Service Co-ops: credit unions, offer services to its members at lower rates

– Producer Co-ops: help members, farmers, promote or sell their products

Labor, Professional, and Business Organizations

• Labor unions: represent workers’ interest and negotiate with management through collective bargaining

• Professional association set standards for those in the profession and influence government policies on issues concern members’ interest (NCSS)

• Business Associations: industries or trade associations that represent specific businesses (BBB)

Government

• Direct Role – Agencies produce and

distribute goods and services to consumers such as the TVA (electricity) or US Postal Service

• Gov’t Corp: – Board of directors– Congresses Money v.

investors money

• Indirect Role:– Regulates public

utilities – Grants money to

people in form of Social Security and student financial aid

Vocabulary Review Chapter 3 section 3

1.Nonprofit organizations

2.Cooperative 3.Labor union 4.Collective bargaining 5.Professional

association

A. Negotiations between representatives of labor and management

B. Economic institution that works in a businesslike manner but does not seek financial gain

C. Organization of workers formed to represent it members interest in various employment matters

D. Group of people in a specialized occupation that works to improve the working conditions, skill levels, and public perceptions of the profession

E. Voluntary association of people formed to carry on some kind of economic activity that will benefit its members

1. Nonprofit organizations

2. Cooperative

3. Labor union

4. Collective bargaining 5. Professional association

Vocabulary Review Chapter 3 section 3

Jump Start Chapter 3 section 31. Which of the following is an example of a service cooperative?

A. Greenville Teachers’ Credit Union B. Association of Manufacturing Workers C. Better Business Bureau D. Mason Chamber of Commerce

2. Which of the following best illustrates the indirect role of government?A. A state park B. A city’s fire department C. The Tennessee Valley authority D. Regulation of public utilities

3. All of the following are typical Chamber of Commerce activities except:A. Educational programs B. Demonstrating against new housing developments C. Neighborhood clean-up campaigns D. Lobbying for favorable business legislation

4. Which of the following is most likely NOT a nonprofit organization?A. Church B. Neighborhood association C. Public school D. Corner grocery store

5. Why are government controls needed on public utilities? Public UtilitiesA. Are investor or municipal ownedB. Usually have no competition C. Provide important public services D. Are responsible for water and electric services