Ch 3: Business Organizations

limited liability

(in lim. partnership) the liability for the debts of the business is limited to the amount the limited partner invested into the company, leaving general partners w/ the rest

credit union

(service co-op) financial organization that accepts deposits from, and makes loans to, employees of a particular company or gov't agency

disadvantages of corporations

- difficulty and expense of getting a charter - owners, or shareholders, have little say in how business is run after they have voted for the board of directors b/c ownership and management are separate - double taxation of corporate profits - subject to more gov't regulation that other forms of business

disadvantages of partnerships

- each partner is fully responsible for the acts of all other partners; one person causes firm to suffer huge loss, every partner is fully & personally responsible for loss - has limited liability - has limited life - may be conflict b/w partners

advantages of corporations

- easy to raise financial capital - directors of corp can hire professional managers to run the firm; owners (stockholders) can own a portion of corp without having to know a great deal abt business - owners have limited liability; corporation itself, not owners, is fully responsible for its debts and obligations - has unlimited life; continues to exist after ownership changes - easy to transfer ownership

advantages of partnerships

- easy to start - easy to manage; multiple partners with different areas of expertise is good - lack of special taxes on partnership - can attract financial capital more easily than proprietorships - slightly larger size, makes for more efficient operations - easier to attract top talent into their organizations

advantages of proprietorships

- easy to start up - easy to manage, flexible - owner enjoys all profits - no need to pay separate business income taxes - psychological satisfaction - easy to get out of business

disadvantages of proprietorships

- owner has unlimited liability, or full responsibility for all losses and debts of the business - difficult to raise financial capital - may not be able to hire enough personnel or stock enough inventory to operate the business efficiently - proprietor often has limited managerial experience - difficulty in attracting qualified employees - has limited life, meaning that the firm legally ceases to exist when the owner dies, quits, or sells the business

stock

A certificate of ownership in a corporation

income statement

A financial statement showing the revenue and expenses for a fiscal period.

bankruptcy

A legal process to get out of debt when you can no longer make all your required payments

Better Business Bureau

A non-profit organization sponsored by local businesses to provide general information on companies. It maintains records on consumer inquiries and complaints and sometimes offers various consumer education programs.

depreciation

Any decrease or loss in value caused by age, wear, or market conditions

merger

Combination of two or more companies into a single firm

collective bargaining

Negotiations between representatives of labor unions and management to determine pay and acceptable working conditions.

dividend

The portion of corporate profits paid out to stockholders

interest

The price paid for the use of borrowed money

public utilities

a company that maintains the infrastructure for a public service. Examples: Electric, Water, Sewage, Waste, Natural Gas, Heat generation and distribution, Public Transport, Telecommunications, Roads

conglomerate

a firm that has at least 4 businesses, each making unrelated products, none of which is responsible for the majority of its sales

inventory

a stock of finished goods and parts in reserve

cooperative (co-op)

a voluntary association of people formed to carry on some kind of economic activity that will benefit its members

consumer cooperative

a voluntary association that buys bulk amounts of goods such as food and clothing on behalf of its members

principal

amount of borrowed money in a bond

chamber of commerce

an association of business people who attempt to protect and promote the commercial interest in a community

labor union

an organization of workers formed to represent its members' interests various employment matters

limited partnership

at least one partner is not active in daily running of business, but has contributed funds to finance operation

partnership

business jointly owned by 2 or more persons

multinational

corporation that has manufacturing or service operations in a number of different countries

corporation

form of business organization recognized by law as a separate legal entity having all the rights of an individual; owned by many investors; has the right to buy and sell property, enter into legal contracts, and sue and be sued

charter

gov't document that gives permission to create a corporation

producer cooperative

helps members promote or sell their products

nonprofit organization

institution that functions much like a business, but does not operate for the purpose of generating profits i.e. schools, churches, hospitals, adoption agencies

(sole) proprietorship

most common form of business organization in the US; business owned and run by one person

professional association

nonprofit organization of professional or specialized workers seeking to improve working conditions, skill levels, and public perceptions of its profession

general partnership

partnership in which partners share equally in both responsibility and liability

stockholders (shareholders)

people or entities that own stock in a corporation and therefore are its owners

service cooperative

provides services i.e. insurance, credit, and babysitting to its members

preferred stock

stock whose holders are guaranteed priority in the payment of dividends but whose holders have no voting rights

cash flow

the difference between cash coming in and cash going out of a business; bottom line, real measure of profits for the business; firm will grow as long as the firm remains profitable and as long as reinvested cash flow is larger than wear and tear on equipment

net income

the difference between total revenue and total expenses when total revenue is greater

common stock

the most basic form of ownership, including voting rights on major issues, in a company

reasons for mergers

to grow faster, to become more efficient, to acquire or deliver a better product, to eliminate a rival, or to change its image

vertical merger

two or more firms involved in different steps of manufacturing or marketing join together

horizontal merger

two or more firms that produce the same kind of product join forces

bond

written promise to repay borrowed money at a later date