Chapter 8 - Business Organization
Identify the characteristics of a sole proprietorship.
A sole proprietorship is a business owned and managed by a single individual. Sole proprietorships are small, make up 75% of all businesses, and generate about 6% of all US sales.
Identify characteristics of corporations.
A corporation is a legal entity, or being, owned by individual stockholders, each of whom faces limited liability for the firm's debts. Corporations are privately or publicly owned and ran by a board of directors.
Identify and explain the advantages and disadvantages of partnerships.
Advantages of partnerships include ease of start-up (no written partnership agreement required), shared decision making and specialization (partners bring different skills and strengths to a business), large pool of capital (allows firms to add limited partners to raise funds), and taxation (not subjected to special taxes). Disadvantages include unlimited liability (each general partner is bound by the acts of all other general partners) and potential for conflict (disagreements on work habits, goals, ethics, etc).
Identify and explain the different types of partnerships.
A partnership is a business organization owned by two or more persons who agree on a specific division of responsibilities and profits. The different types of partnerships include general partnership (partners share equally in both responsibility and liability), limited partnership (only one partner is require to be a general partner), and limited liability partnerships (all partners are limited partners).
Identify and explain the advantages and disadvantages of a sole proprietorship.
Advantages of a sole proprietorship include ease of start-up (allows anyone to start a sole proprietorship with just a small amount of paperwork and legal expense), relatively few regulations (face few legal requirements due to little paperwork), sole receiver of profit (owner keeps all profits and don't have to share success), full control (can run businesses in any way and form), and easy to discontinue (can stop operations after paying all debts and obligations). Disadvantages include unlimited personal liability (fully and personally responsible for business debts), limited access to resources (lack of money and skill), and lack of performance (limited employees).
Identify and explain the advantages and disadvantages of corporations.
Advantages of corporations include stock holders having a limited liability, more potential for growth, longer life, and the ability to hire expertise to run the firm. Disadvantages include difficulties and expensiveness to start up, double taxations of owners and the business, owners' loss of control to board of directors, and more regulation by government.
Describe the role of multinational corporations, conglomerates, and provide examples.
Multinational corporations are corporations that produces and sells its goods and services throughout the world (ex. FedEx). Conglomerates are business combinations merging more than three businesses that make unrelated products (ex. General Electric).
Explain the difference between vertical and horizontal mergers and provide examples of both.
Vertical mergers join two or more firms involved in different stages of producing the same good or service (ex. American Online combining with Time Warner). Horizontal mergers join two or more firms competing in the same market with the same good or service (ex. Hewlett-Packard merging with Compaq Computer).