Economics: Chapter 8: Types of Business Organizations

List and Describe the Advantages of Corporations.

- Access to Resources: able to raise money in many ways (bank loans, selling stock, issuing bonds) - Professional Managers: lead to higher profits - Limited Liability: the corporation, not the owners, are at fault -Unlimited Life: business still operates if owners leave business, easy to transfer ownership

What is the disadvantage to owning preferred stock?

- Cannot elect members of the Board of Directors

What are the benefits to owning preferred stock?

- Receive dividends before common stockholders - If business fails, you get your investment back before common stockholders

What are the advantages of a partnership?

-Easy to Open/Close -Few Regulations: must enter into legal agreements -Access to Resources: easier to get bank loans, and attract and keep good workers -Joint Decision Making: may result in better decisions -Relative Ease of Management -Specialization: promotes efficiency -Size: larger than a sole proprietorship, more efficient

List and describe the advantages of sole proprietorship.

-Easy to Open/Close: typical requirements (funding, license, site permit, registered name, pay off debts to exit business) -Few Regulations: proper zoning and following laws -Freedom and Control: owner makes decisions and has control -Psychological Satisfaction in being your own boss -Owner keeps profits earned

Why do mergers take place?

-Grow faster -Become more efficient -Acquire a better product -Eliminate a rival -Change in image by gaining/losing an identity

What do the Articles of Partnership state ahead of time?

-How profits and losses will be divided -The way future partners may be taken into the business -How the property of the business will be distributed if the partnership ends

List and Describe the Advantages of a franchise.

-Independence -Franchiser provides: training in running the business, products at a low cost, advertising

List and describe the disadvantages of sole proprietorship.

-Limited Funds: makes business more likely to fail, hard to secure a bank loan, struggle to stay in business, hard to attract and keep good workers -Limited Life: firm legally ceases to exists if owner dies, retires, or leaves business -Unlimited liability: works long hours, legally responsible for all aspects, risks losing home, car, or personal savings to pay debt off -Inventory: businesses need to maintain a minimum inventory and cover all business hours -Limited Managerial Experience: may have to hire other workers

List and Describe the Disadvantages of a franchise.

-Must invest your own money with no assurance of success -Must share profits with franchiser -No full control over business

What are the benefits to multinational corporations?

-New jobs, goods, services, and technology -Increased globalization -Higher standard of living

List and Describe the Disadvantages of Corporations.

-Start-up costs and effort: time-consuming, difficult, expensive, lots of paperwork, must hire lawyers -Heavy Regulations: annual SEC (Securities and Exchange Commission) reports, detailed records must be kept -Double Taxation: Taxed as corporation profits and again as personal income -Loss of Control: Decisions are made by the Board of Directors, not the owner

What are the disadvantages of a partnership?

-Unlimited Liability: partners risk personal savings and property to cover debt -Increased Risk: more access to capital increases risk of bankruptcy -Potential for Conflict: many partners must reach agreement on decisions -Limited Life: if a partner leaves or joins, the business legally ceases to exist and new agreements must be drawn

The ____________________________ are formal legal papers drawn to specify arrangements between partners.

Articles of Partnership

There are not many mergers in the US , but there's a lot in ____________.

Asia

In a sole proprietorship, why may it be hard to attract and keep good workers?

Because of inability to pay competitive wages and offers benefits (health insurance, paid sick days)

_______________ is a contract a corporation issues that promises to repay borrowed money plus interest on a fixed schedule.

Bond

A _______________ is an enterprise that produces goods or services.

Business Organization

Where do most goods and services come from?

Business organizations

What kind of businesses can register as limited liability partnerships?

Businesses in which malpractice can be an issue; examples: doctor's offices, law firms, accounting firms

What is the main reason for conglomerations?

Diversification

______________ protects the parent company from isolated economic pressures.

Diversification

A ___________ is part of the profit that the company pays out to stockholders.

Dividend

Fortune Magazine's list of the top 500 business is called the "____________________" and ranks businesses by sales revenue.

Fortune 500

When and where was the first recorded use of the word "corporation" ?

Found in the works of Tertullian- founder of the Christian church in 1900 AD

A _______________ is a business that licenses the right to sell products in a particular area.

Franchise

A ________________ is the individual business that buys the right to run a franchise.

Franchisee

A _______________________ is a type of partnership where partners share management of the business and each one is liable for all business debts and losses.

General Partnership

What is the most common type of partnership?

General Partnership

Adidas and Reebok would be an example of a _____________________ merger.

Horizontal

A ________________________ describes the joining of companies with similar products.

Horizontal Merger

The first time a company goes public they offer a __________.

IPO (Initial Public Offering)

_________________ is the price paid to use another's money while their money is being borrowed.

Interest

A _______________ is a stock of finished goods and parts in reserve.

Inventory

What kind of businesses uses partnerships?

Law firms, doctor's offices, real-estate

A ___________________ is a type of partnership where all partners are limited partners and are not responsible for the liabilities of other partners.

Limited Liability Partnership (LLP)?

________________ is a situation in which a business will cease to exist if the owner dies, retires, or leaves.

Limited Life

A _______________________ is a type of partnership where at least one partner is not involved in the daily running of the business and is liable only for the funds he has invested.

Limited Partnership

If you buy a stock for $20 and it goes down to $15, you ________ money.

Lost

___________________ is improper, negligent or unprincipled behavior.

Malpractice

A partnership is like a _______________.

Marriage

What are some multinational corporations?

McDonald's, Google, Coca-Cola, Nike, Sony

A _______________ is a combination of 2 or more businesses to form a single firm.

Merger

A _______________________ is a large corporation with branches in other countries.

Multinational Corporation

______________________ have the ability to move resources, goods, services, and financial capital across national boarders.

Multinational Corporations

Do the owners of corporations have personal liability at risk?

No

A ____________________ is a business that aims to benefit society, not to make a profit.

Nonprofit Organization

How many votes per share of stock would an owner with common stock receive?

One

A ______________ is a business owned by two or more people.

Partnership

Which type of business organization has the second smallest proportion of sales and net income?

Partnership

Which type of business organization is the least numerous?

Partnership

________________ is nonvoting ownership shares of a corporation.

Preferred Stock

____________ is the amount of borrowed money.

Principal

A ______________________ is a corporation that retains control over who can buy and sell its stock.

Private Company (Privately Held Company)

_____________________ ensure cheaper, more efficient processing or marketing.

Producer Co-ops

A _________________ is a ballot that gives stockholders a representative the right to vote on corporate matters; stand in if someone can't be there to vote.

Proxy

A _____________________ is a corporation that issues stock that can be freely bought and sold.

Public Company

How often are dividends usually issued?

Quarterly

____________________ provide services at a low cost.

Service Co-ops

Individuals who invest in firms are known as ______________________ or _____________________.

Shareholders/ Stockholders

A _______________ is a business owned and run by a single person.

Sole Proprietorship

What type of business organization is the most common?

Sole Proprietorship

Which type of business has the least amount of requirements?

Sole Proprietorship

Which type of business organization is the most numerous and prosperous but the smallest that doesn't make a lot of money?

Sole Proprietorship

What are the three main kinds of businesses?

Sole proprietorship, Partnership, Corporation

Which level of government grants corporate charters?

State government

A charter specifies the amount of __________ that a corporation can sell.

Stock

____________ are shares of ownership in the corporation.

Stock

________________ and ________________ are not involved in the daily operations of the corporation.

Stockholders and The Board of Directors

What risk do people take when one buys stock?

That the value of the stock may decline

Why are sole proprietorships the easiest type of business to start?

There are few requirements

What is the purpose of a business organization?

To earn profits

True or False: In a limited liability partnership, partners' savings are not at risk unless the debts come from their own mistakes.

True

True or False: In a limited partnership, limited partners do not participate in running the business

True

True or False: In a limited partnership, there can be any number of limited partners.

True

True or False: In a limited partnership, there must be at least one general partner who runs a business and is liable for all debts and at least one limited partner.

True

True or False: One must be very careful in choosing a business partner.

True

True or False: Partners are financially responsible for personal and business debts of the partners except as exemplified in the articles

True

True/ False: A corporation can buy and sell property, sue and be sued, and enter into legal agreements.

True

True/ False: Corporations are formal, legal entities with all individual rights separate from the individuals who own and run it.

True

True/ False: In a merger, one or both firms give up their separate legal identity.

True

True/ False: Individuals own the rights to the company's profits but have limited liability for the company's debts and losses.

True

True/ False: Nonprofit organizations have unlimited life.

True

True/ False: Not all businesses exist solely to make a profit.

True

True/ False: Some small corporations can be excluded from double taxation.

True

A ___________ is a government document that gives permission to create a corporation.

Charter

To establish a corporation you must file a _____________.

Charter

_____________________ is basic ownership of a corporation.

Common Stock

A ________________ is when companies with unrelated products combine.

Conglomerate

________________________ keep prices low by purchasing in large volumes.

Consumer Co-ops (Purchasing Co-ops)

A ______________________ is a type of business operated for the shared benefit of the owners, who are the customers.

Cooperative (Co-op)

A __________________ is a business owned by individuals.

Corporation

Which type of business organization requires the most work and expense to set up?

Corporations

A ______________________ is a financial organization that accepts deposits from and makes loans to employees of a particular company or government agency.

Credit Union

_________________ is a situation in which a business owner is responsible for all loses and debts.

Unlimited Liability

Corporations have __________ life and _____________ liability.

Unlimited life, Limited Liability

Shell, who owned more oil refineries, joining Texaco, who owned more gas stations, would be an example of a ___________________ merger.

Vertical

A ________________________ describes the joining of companies with different steps of production or marketing.

Vertical Merger

Who owns Berkshire Hathaway?

Warren Buffet

Corporations issue ____________ as a "thank you" to its stockholders when the company is profitable.

dividends