Forms of business organizations chapter 3week1
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Forms of business organizations chapter 3week1

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Business Organizations

Business Organizations

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    Forms of business organizations chapter 3week1 Forms of business organizations chapter 3week1 Presentation Transcript

    • CHAPTER 3: BUSINESS ORGANIZATIONS
      Section One: Forms of Business Organization
    • I. Forming a Proprietorship
      Easiest form of business to start-needs only the occasional licenses and fees
      Ease of start up
      Relative ease of management
      Decisions can be made quickly
    • Proprietorship Advantages
      Owner enjoys the PROFITS of successful management without having to share
      No separate business income taxes
      Not recognized as a separate legal entity
      Owner must pay individual income taxes on profits
      Business is exempt from any tax on the income
      Psychological satisfaction
      Easy to get out of business
    • Proprietary Disadvantages
      Unlimited liability
      Owner is personally and fully responsible for all loses and debts of the business
      If business fails, the owner’s personal possessions may be taken away to satisfy business debts
      Difficult to raise capital
      Personal financial resources are limited
      Size and efficiency: Inventory is any unused stock of finished goods/parts in reserve
    • Proprietary Disadvantages
      Limited Managerial Skills
      Difficulty of attracting qualified employees
      Fringe benefits- Employee benefits such as vacation, sick leave, retirement, medical, and health insurance may not be available
      Limited lifespan: The firm legally ceases to exist when the owner dies, quits, or sells the business
    • II. Partnerships
      Owned by 2 or more persons
      Least numerous business organization
      Smallest proportion of sales and net income
    • Types of Partnerships
      General Partnership: All partners are responsible for the management and financial obligations of the business.
      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
      Ex. www.evangelinecafe.com
    • Forming a Partnership
      Relatively easy to start
      Articles of Partnership: Formal legal papers which specify arrangements between partners
    • Advantages of Partnerships
      Ease of start up.
      Articles of Partnership involves attorney fees and filing fee for the state.
      Ease of management: Each partner usually brings different areas of expertise to the business.
      Lack of special taxes: Partners draw profits from the firm and then pay individual income taxes at the end of the year
    • Advantages of Partnerships
      Usually attract financial capital more easily than a sole proprietorship
      Slightly larger size = greater efficiency
      Lawyers, doctors, accountants
      Usually attract top talent to their organizations
    • Disadvantages of Partnerships
      Unlimited Liability: Each partner is fully responsible for the acts of all partners
      Limited Partnership: The limited partner has limited liability
      Investor’s responsibility for the debts of the business is limited by the size of their investment in the firm
      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
    • Disadvantages of Partnerships
      Limited Life: When a partner leaves or dies, the partnership must be dissolved and reorganized.
      The new partner may try to keep an agreement to keep its name
      Potential for Conflict: “Why can’t we all just get along?”
    • III. Corporations
      Defn: A form of business organization recognized by law a a separate legal entity having all as an individual.
      Can buy & sell property
      Enter into legal contracts and sue and besued
      Account for 1/5 of the firms in the US
      Account for 90% of all sales
      Ex: http://www.timewarner.com/corp/businesses/index.html
    • Forming a Corporation
      Very formal and legal arrangement
      Incorporation (or forming a corporation) must file for permission from the state where business will have be headquartered
      Charter: A government document that gives permission to create a corporation if approved
      States the company name, address, purpose of business, and the number of shares of stock, or ownership certificates, within the firm
    • Forming a Corporation, continued
      Shares of stock are sold to investors called…
      stockholders, or shareholders.
      $$ is then used to set-up corporation (remember “Tucker” DVD)
      A check, or dividend, is paid to shareholders if the corporation is profitable
    • Corporate Structure: Common Stock
      Investors become owners with certain ownership rights, depending on type of stock purchased:
      Common Stock: Basic ownership of corporation
      Owner usually receives 1 vote for each share of stock
      Used to elect board of directors who direct the corporation’s business by setting policies/goals
      The Board hires a professional management team to run the business on a daily basis
    • Common Stock
      The dividend is variable and common stock shareholders are the last to receive a dividend or get their $$ back if corporation fails.
    • Preferred Stock
      Nonvoting ownership shares of a corporation
      These shareholders receive dividends first and they are fixed
      If there are funds or property left after a business fails, preferred stockholders get their investment back first!
      Preferred stockholders cannot elect the board of directors-THEY CANNOT VOTE!!
    • Advantages of the Corporation
      Ease of raising financial capital
      Need more capital?
      Sell additional stock
      Borrow $$ by issuing bonds: Written promise to repay the amount borrowed at a later date
      Principal: Amount borrowed to be repaid later
      Interest: The price paid by the corporation for the use of another’s $$
    • Advantages of the Corporation
      Ease of finding professional managers
      Limited liability for its owners
      Corporation is fully responsible for its debts and obligations
      **Because limited liability is so attractive, many firms incorporate just to take advantage of it
    • Advantages of the Corporation
      Unlimited life: Corporation continues to exist even when ownership changes
      Because the corporation is a legal entity, the name of the company remains the same, and the corporation continues to do business
      Ease of transferring ownership: If a shareholder no longer wants to be an owner, they can sell the stock
    • Disadvantages of the Corporation
      Difficult to get a charter
      Depending on the state, attorneys’ fees and filing expense can cost several thousand $$
      Owners/shareholders have little say in business affairs after voting for board of directors
      Double Taxation: Corporate profits
      Stockholders’ dividends are taxed twice: once as corporate profit and again as personal income
    • Disadvantages of the Corporation
      Lots of Government regulation:
      Register with state where the Corp. is chartered
      To sell stock to the public, the Corp. must register with the Securities and Exchange Commission
      Provide detailed financial statements on regular basis to the general public
      When taking over another business, the Corp may require federal approval
    • Government and Business Regulation
      Business Regulation: In the 20th century, various consumer groups demanded regulation of giant corporations.
      Federal and state governments responded by passing stronger regulations.
      Rigorous regulations for banks, insurance companies, electricity, telephone, and transportation
      Ex?, Sherman and Clayton Anti-trust Acts, FDIC, Federal Reserve, FCC, Dept. of Transportation
    • Government and Business Regulation
      Business Development: States try to attract new industry. Offer tax credit or a reduction in taxes for a business to move to a state
      Examples in TX?
      www.governor.state.tx.us/ecodev/