Economics Ch. 3: Business Organizations

What is a merger?

A merger is when two or more companies combine into one company.

What are the advantages and disadvantages of a partnership?

Advantages: Easy to start, easy to manage, lack of special taxes, easily attract capital, larger size makes it run more smoothly, and easier to attract qualified employees. Disadvantages: Partners are responsible for each other, the business must be re-organized if one partner leaves, and the potential for conflict between partners.

How is the government like a business?

The government provides goods and services to citizens, such as electrical power, waste management, and the postal service.

What are the advantages and disadvantages of corporations?

Advantages: Easy to raise money, professional managers run the company, stockholders (part owners) are not responsible for losses, unlimited life, and easy to transfer ownership (stock shares) Disadvantages: Difficult and expensive to get government approval to start, stockholders (owners) have no say in how the business is run, double taxation, and more government regulation.

What are the three types of business organizations? Describe each.

1) Sole proprietorship: A business owned and operated by one person 2) Partnership: A business owned and operated by two or more people. 3) Corporation: A large business not owned by individuals, but that is owned by many stockholders. This type of business must be approved by the government.

What are the advantages and disadvantages of a sole proprietorship?

Advantages: Easy to start, easy to manage, profits are not shared, do not pay income taxes, and easy to end the business. Disadvantages: The one owner is fully responsible for all losses, difficult to raise capital ($), the owner often has little experience, and difficult to find qualified employees.