Forms of business organizations chapter 3week1

CHAPTER 3: BUSINESS ORGANIZATIONS,[object Object],Section One: Forms of Business Organization,[object Object]

I. Forming a Proprietorship,[object Object],Easiest form of business to start-needs only the occasional licenses and fees,[object Object],Ease of start up,[object Object],Relative ease of management,[object Object],Decisions can be made quickly,[object Object]

Proprietorship Advantages,[object Object],Owner enjoys the PROFITS of successful management without having to share,[object Object],No separate business income taxes,[object Object],Not recognized as a separate legal entity,[object Object],Owner must pay individual income taxes on profits,[object Object],Business is exempt from any tax on the income,[object Object],Psychological satisfaction,[object Object],Easy to get out of business,[object Object]

Proprietary Disadvantages,[object Object],Unlimited liability,[object Object],Owner is personally and fully responsible for all loses and debts of the business,[object Object],If business fails, the owner’s personal possessions may be taken away to satisfy business debts,[object Object],Difficult to raise capital,[object Object],Personal financial resources are limited,[object Object],Size and efficiency: Inventory is any unused stock of finished goods/parts in reserve,[object Object]

Proprietary Disadvantages,[object Object],Limited Managerial Skills,[object Object],Difficulty of attracting qualified employees,[object Object],Fringe benefits- Employee benefits such as vacation, sick leave, retirement, medical, and health insurance may not be available,[object Object],Limited lifespan: The firm legally ceases to exist when the owner dies, quits, or sells the business,[object Object]

II. Partnerships,[object Object],Owned by 2 or more persons,[object Object],Least numerous business organization,[object Object],Smallest proportion of sales and net income,[object Object]

Types of Partnerships,[object Object],General Partnership: All partners are responsible for the management and financial obligations of the business.,[object Object],Limited Partnership: At least one partner is not active in the daily running of the business, although he or she may have contributed funds to finance the operation,[object Object],Ex. www.evangelinecafe.com,[object Object]

Forming a Partnership,[object Object],Relatively easy to start,[object Object],Articles of Partnership: Formal legal papers which specify arrangements between partners,[object Object]

Advantages of Partnerships ,[object Object],Ease of start up.,[object Object],Articles of Partnership involves attorney fees and filing fee for the state.,[object Object],Ease of management: Each partner usually brings different areas of expertise to the business.,[object Object],Lack of special taxes: Partners draw profits from the firm and then pay individual income taxes at the end of the year,[object Object]

Advantages of Partnerships,[object Object],Usually attract financial capital more easily than a sole proprietorship,[object Object],Slightly larger size = greater efficiency,[object Object],Lawyers, doctors, accountants,[object Object],Usually attract top talent to their organizations,[object Object]

Disadvantages of Partnerships,[object Object],Unlimited Liability: Each partner is fully responsible for the acts of all partners,[object Object],Limited Partnership: The limited partner has limited liability,[object Object],Investor’s responsibility for the debts of the business is limited by the size of their investment in the firm,[object Object],If business fails with a large debt, the limited partner (investor) only loses their original investment, leaving the general partners to make up the rest,[object Object]

Disadvantages of Partnerships,[object Object],Limited Life: When a partner leaves or dies, the partnership must be dissolved and reorganized.,[object Object],The new partner may try to keep an agreement to keep its name,[object Object],Potential for Conflict: “Why can’t we all just get along?”,[object Object]

III. Corporations,[object Object],Defn: A form of business organization recognized by law a a separate legal entity having all as an individual.,[object Object],Can buy & sell property,[object Object],Enter into legal contracts and sue and besued,[object Object],Account for 1/5 of the firms in the US,[object Object],Account for 90% of all sales,[object Object],Ex: http://www.timewarner.com/corp/businesses/index.html,[object Object]

Forming a Corporation,[object Object],Very formal and legal arrangement,[object Object],Incorporation (or forming a corporation) must file for permission from the state where business will have be headquartered,[object Object],Charter: A government document that gives permission to create a corporation if approved,[object Object],States the company name, address, purpose of business, and the number of shares of stock, or ownership certificates, within the firm,[object Object]

Forming a Corporation, continued,[object Object],Shares of stock are sold to investors called…,[object Object],stockholders, or shareholders.,[object Object],$$ is then used to set-up corporation (remember “Tucker” DVD),[object Object],A check, or dividend, is paid to shareholders if the corporation is profitable,[object Object]

Corporate Structure: Common Stock,[object Object],Investors become owners with certain ownership rights, depending on type of stock purchased:,[object Object],Common Stock: Basic ownership of corporation,[object Object],Owner usually receives 1 vote for each share of stock,[object Object],Used to elect board of directors who direct the corporation’s business by setting policies/goals,[object Object],The Board hires a professional management team to run the business on a daily basis,[object Object]

Common Stock,[object Object],The dividend is variable and common stock shareholders are the last to receive a dividend or get their $$ back if corporation fails.,[object Object]

Preferred Stock,[object Object],Nonvoting ownership shares of a corporation,[object Object],These shareholders receive dividends first and they are fixed,[object Object],If there are funds or property left after a business fails, preferred stockholders get their investment back first!,[object Object],Preferred stockholders cannot elect the board of directors-THEY CANNOT VOTE!!,[object Object]

Advantages of the Corporation,[object Object],Ease of raising financial capital,[object Object],Need more capital? ,[object Object],Sell additional stock,[object Object],Borrow $$ by issuing bonds: Written promise to repay the amount borrowed at a later date,[object Object],Principal: Amount borrowed to be repaid later,[object Object],Interest: The price paid by the corporation for the use of another’s $$,[object Object]

Advantages of the Corporation,[object Object],Ease of finding professional managers,[object Object],Limited liability for its owners,[object Object],Corporation is fully responsible for its debts and obligations,[object Object],**Because limited liability is so attractive, many firms incorporate just to take advantage of it,[object Object]

Advantages of the Corporation,[object Object],Unlimited life: Corporation continues to exist even when ownership changes,[object Object],Because the corporation is a legal entity, the name of the company remains the same, and the corporation continues to do business,[object Object],Ease of transferring ownership: If a shareholder no longer wants to be an owner, they can sell the stock,[object Object]

Disadvantages of the Corporation,[object Object],Difficult to get a charter,[object Object],Depending on the state, attorneys’ fees and filing expense can cost several thousand $$,[object Object],Owners/shareholders have little say in business affairs after voting for board of directors,[object Object],Double Taxation: Corporate profits,[object Object],Stockholders’ dividends are taxed twice: once as corporate profit and again as personal income,[object Object]

Disadvantages of the Corporation,[object Object], Lots of Government regulation:,[object Object],Register with state where the Corp. is chartered,[object Object],To sell stock to the public, the Corp. must register with the Securities and Exchange Commission,[object Object],Provide detailed financial statements on regular basis to the general public,[object Object],When taking over another business, the Corp may require federal approval,[object Object]

Government and Business Regulation,[object Object],Business Regulation: In the 20th century, various consumer groups demanded regulation of giant corporations.,[object Object],Federal and state governments responded by passing stronger regulations.,[object Object],Rigorous regulations for banks, insurance companies, electricity, telephone, and transportation,[object Object],Ex?, Sherman and Clayton Anti-trust Acts, FDIC, Federal Reserve, FCC, Dept. of Transportation,[object Object]

Government and Business Regulation,[object Object],Business Development: States try to attract new industry. Offer tax credit or a reduction in taxes for a business to move to a state,[object Object],Examples in TX?,[object Object],www.governor.state.tx.us/ecodev/,[object Object]

Forms of business organizations chapter 3week1

Forms of business organizations chapter 3week1

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Forms of business organizations chapter 3week1