- Slides: 27
§Ch. 3 Business Organizations §You have 10 minutes to finish up vocabulary words….
Owned and run by a single person
Sole Proprietorship Advantages of Sole Proprietorships Disadvantages of sole Proprietorship: q Easy to start up q q Management is relatively simple responsibility for all debts and liabilities of the company q You keep all profits q Difficulty in raising financial capital q Limited size and efficiency q Limited managerial experience q Limited Life q You do not have to pay any business taxes q Psychological satisfaction from “being your own boss” q Easy to get out of the business Unlimited Liability: you have total
§ If you started your own business what would it be? § What are some of the 4 Factors of production you would need. § 2 examples for each Labor Land Capital Entrepreneur
Jointly owned by two or more persons Examples: Law firms
PARTNERSHIPS Two major types of partnerships: General Partnership: (most common type) all partners are responsible for management and the financial responsibilities of the partnership. Limited Partnership: at least one partner is not active in the day to day running of the business. They have limited liability. Articles of Partnership: contract between partners spelling out the rules of partnership. Dividing profit Dividing responsibility Admitting new partners Buying out partners
Advantages of Partnerships: § Ease of establishment § Ease of Management: each partner has different things to offer § No special business taxes § Easier to raise financial capital § Larger than sole proprietorship § Easier to attract qualified workers Disadvantages of Partnerships § Unlimited liability § Limited partner is only responsible for his initial investment. He has limited liability. § Limited Life § Conflict between partners
§ Business organization recognized by law as a separate legal entity with all the rights of an individual
§ Incorporate: to form a corporation. § Charter: a document granted by the state giving a corporation the right to do business § Stock: shares of ownership in the corporation § Stockholders (shareholders): owners of stock. Reasons to own stock: Dividends: share of corporate profits paid to stockholders Speculation: buy in hope that price of stock will increase.
§ Common Stock is a basic share of ownership in a corporation § Have voting rights in the management of the company § In reality they turn over voting rights to someone else with a proxy: giving someone else the right to vote your share of stock. § Preferred Stock: Non voting shares of ownership Guaranteed dividend Liquidation benefit: If corporation goes out of business they are ahead of common stockholders in getting back money. § Board of Directors: duty to direct the corporations business by setting board policies and goals Elected by common stockholders § Hires a professional management team to run day to day activities. (CEO, CFO…. )
CORPORATIONS Advantages of a corporation : Ease of raising financial capital (main advantage) § Selling stock to investors § Selling bonds: a written promise to repay a loan on a specific date § Principal: the amount borrowed § Interest: the price paid for the use of another’s money § Borrowing money from banks. Ability to hire Limited liability Unlimited life Ease of transferring ownership: . Buying and selling stock is easy and is done millions of times a day Disadvantages of a corporation : Start up expenses are high. Stockholders (owners) have a limited Profits are taxed Corporations are subject to more government regulations than sole proprietors or partners
§ Using the Venn Diagram list the similarities and differences between Sole Proprietorships, Partnerships, and Corporations
Make money faster/grow faster Mergers allow firms to grow quickly in size To change its image Increase efficiency 5 Reasons to Merge Acquire or deliver new/better products To eliminate rivals
§ Horizontal Merger- when two or more companies that product the same kind of product join forces. § Example: the merger of JPMorgan and Chase Manhattan to form JPMorgan Chase § Vertical merger- when two or more firms that are at different steps of manufacturing process join together. § Example: The US Steel Corporation § Conglomerates- is a firm that has at least four businesses, each making unrelated products. § Example: Samsung, GE (General Electric Company) It is the biggest conglomerate in the United States.
§ It is the biggest conglomerate in the United States. § It offers diversified technology and is also a credible financial services company. § With its wide and diverse variety of products of; aircraft engines, water processing, household appliances, power generation, industrial products, business and consumer financing. § It is present in more than 100 countries all over the world. § GE’s segments are Aviation, Energy Infrastructure, Transportation, Healthcare, GE Capital, and Home and Business Solutions. However, GE streamlined their segments into Aviation, Healthcare, and Transportation. § General Electric § Home appliance company · ge. com § General Electric is an American multinational conglomerate corporation incorporated in New York. As of 2015, the company operates through the following segments: Appliances, Power and Water, Oil and. . . § Stock price: GE (NYSE) $30. 00 +0. 03 (+0. 10%) Dec 3, 7: 04 PM EST - Disclaimer § Headquarters: Fairfield, CT § CEO: Jeffrey R. Immelt § Founded: 1892, Schenectady, NY § Subsidiaries: GE Capital, GE Healthcare, NBCUniversal, More § Founders: Thomas Edison, Charles A. Coffin, Elihu Thomson, Edwin J. Houston
Firms produce the same kind of products Firms involved in different stages of production
§ With a neighbor develop 2 examples of each type of merger § Vertical § Horizontal § Conglomerate § Why would companies ever want to merge? ? 1 2 3 4 5
Non-Profits: We don’t like $$$ we just want to make you
§ A nonprofit organization (NPO, also known as a non-business entity) is an organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization's shareholders (or equivalents) as profit or dividends. § Some non profit organizations are § Museum of Modern Art § American Museum of Natural History § American Red Cross § Alzheimer's Association