Economics Chapter 8

what are the advantages of sole proprietorship?

1)easy start up 2) least regulated 3)owner gets to keep all the profits after paying income tax 4) run their business as they wish

characteristics of a corporation

1. 20% of all businesses 2) more than 80% of all sales 3) have an identity seperate from the owners

disadvantages of incorporation

1. expenses and difficulty of start up 2. double taxation 3. potential loss of control by the founders 4. more legal requirements and regulations

uniform partnership act

If partners do not develop their own articles of partnership,they will fall under the rules of the uniform partnership act - law adopted by most states to establish rules for partnerships

sole proprietorship

a business owned and managed by a single individual

dividend

a portion of corporate profitspaid out to stockholders

characteristics of sole proprietorships

1) most take in relatively small amounts of money or receipts 2) are usually engaged in a service business

how do general partnerships differ from sole proprietorships?

If a business has more than one general partners, each one has only partial control over the firm. Sole proprietors have full control

conglomerate

a business combination merging more than three businesses that produce unrelated products or services

cooperative

a business organization owned and operated by a group of individuals for their shared benefit

partnership

a business organization owned by two or more persons who agree on a specific division of responsibilities and profits

stock

a certificate of ownership in a corportation

business associations

a group organized to promote the collective business interest of an area or group of similar business

multinational conglomerate

a large corporation that produces and sells its goods and services in more than one country

corporation

a legal entity or being owned by individual stockholders, each of whom has limited liability for the firms debts.

certificate of incorporation

a license to form a corporation issued by a state governement

nonprofit organization

an institution that functions much like a business but does not operate for the purpose of generating profit

business license

authorization to operate a business issued by a local government

why might the government block a horizontal merger?

because such a merger might gain monopoly power in its market

nonprofit organizations are usually in the business of

benefiting the public. examples include public schools, the American Red Cross, and hospitals

how do members benefit from cooperative

by working together, the individuals help one another. 1. control of the organization by its members 2. sharing of contributions and benefits by members

advantage of franchise

comes with a built in reputation (consumers are already familiar with the product and brand)

what are the advantages to partnerships?

in successful partnerships each partner brings different strengths and skill sets to the business.

zoning laws

laws in a city or town that designate certain areas or zones for residential and business use

professional organization

nonprofit organization that works to improve the image, working conditions, and skill levels of people in particular occupations

trade asssociations

nonprofit organizations that promote the interests of particular industries

what role do business license license play in a sole proprietorship?

requires authorization from the local government to operate a business. certain professionals like doctors or day care providers may also need a special license from the state.

what is the most common form of business organization?

sole proprietorship. According to IRS more than 70% of all businesses are sole proprietorships

horizontal merger

the combination of two or more firms competing in the same market with the same good or service

liability

the legal obligation to pay debts

assests

the money and other valuables belonging to an individual or business

business organiztion

the ownership structure of a company or firm

what role do zoning laws play in sole proprietorships?

they could prohibit a sole proprietor from operating a business out of their home.

what is the role of corporate officers?

they run the corporation and oversee it's operations. they also hire managers and employees who work in various departments.

vertical merger

two or more firms involved in different stages of producing the same good or service

bond

a formal contract issued by a corporation or other entity that includes a promiseto repay borrowed money with interest at fixed intervals

articles of partnership

a partnership agreement that spells out each partner's rights and responsibilities

biggest disadvantage of franchise

the owner must sacrifice some freedom in return for the parent company's guidance

royalties

the share of earnings given by a franchisee as payment to the franchiser

consumer cooperative

a retail outlet owned and operated by consumers that sells merchandise to members at reduced prices

business franchise

a semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area

why are sole proprietorship's easy to start and end?

a sole owner can make all of the decisions without having to consult with partners. they must pay all debts and pay taxes but they do not have to meet any other obligations.

disadvantages of franchises

1. high franchising fees and royalties 2. strict operating standards 3. purchssing restrictions 4. limited product line

limited liability corporation

a type of business with limited liability for the owners,with the advantage of not paying corporate income tax

service cooperative

a type of cooperative that provides a service rather than a good

closely held corporation

a type of corporation that issues stock to only a few people who are often family members

publicly held corporation

a type of corporation that sells stock on the open market

limited liability partnership

a type of partnership in which all partners a limited partners

general patnership

a type of partnership in which all partners share equally in both responsibility and liability

limited partnership

a type of partnership in which only one partner is required to be a general partner

producer cooperative

an agricultural marketing cooperative that helps members sell their products

fringe benefits

payments to employees other than wages or salary

what are the disadvantages of sole proprietorship's?

1) unlimited personal liability to pay debts. 2) if sole proprietor dies, gets sick, or retires business ceases to exist if no one else runs it or buys it 3) small business owners lack resources to offer experienced employees fringe benefits such as paid vacations and health insurance 4) limited access to loans (capital), may lack skills some of the skills to run a business, such as being great at sales but not at accounting

what are the four advantages of incorporating?

1. limited liability for owners 2. transferable ownership 3.ability to attract capital 4. long life

advantages of franchises

1. management training and support 2. standardized quality 3. national advertising 4. financial assistance 5. centralized buying power