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    Unit 1 Test PowerPoints Unit 1 Test PowerPoints Presentation Transcript

    • Copyright © Cengage Learning. All rights reserved.
      1 | 1
      Chapter One
      Exploring the World of Business and Economics
    • Copyright © Cengage Learning. All rights reserved.
      1 | 2
      The Organized Effort of Individuals
      Combining Resources
    • Copyright © Cengage Learning. All rights reserved.
      1 | 3
      The Relationship Between Sales Revenue and Profit
      Profit is what remains after all business expenses have been deducted from sales revenue. A loss (negative profit) results when a firm’s expenses are greater than its revenues.
    • Copyright © Cengage Learning. All rights reserved.
      1 | 4
      Business Profit
      The purposes of profit
      To reward business owners for producing goods and services consumers want
      As payment for business owners assuming the risks of ownership
      Stakeholders
      All of the different people or groups or people who are affected by the policies and decisions made by an organization
    • Copyright © Cengage Learning. All rights reserved.
      1 | 5
      Economic Systems (cont’d)
      Factors of production
      Land and natural resources
      Labor
      Capital
      Entrepreneurship
      Entrepreneur
      A person who risks time, effort, and money to start and operate a business
    • Copyright © Cengage Learning. All rights reserved.
      1 | 6
      Economic Systems (cont’d)
      Differences in economic systems
      How they answer the four basic economic questions
      What goods and services will be produced?
      How will they be produced?
      For whom will they be produced?
      Who owns and controls the major factors of production?
    • Copyright © Cengage Learning. All rights reserved.
      1 | 7
      Types of Economic Systems
      Capitalism
      An economic system in which individuals own and operate the majority of businesses that provide goods and services
      Derived from Adam Smith’s laissez-faire capitalism in which a society’s best interests are served by individuals pursuing their own self-interest
      Creation of wealth is the concern of private individuals
      Resources used to create wealth must be privately owned
      Economic freedom ensures the existence of a free market economy
      Businesses and individuals decide what to produce and buy; the market determines quantities sold and prices
      Limited role of government
    • Copyright © Cengage Learning. All rights reserved.
      1 | 8
      Types of Economic Systems (cont’d)
      Capitalism in the United States
      Mixed economy with elements of capitalism and socialism
      Households
      Consumers of goods and services
      Resource owners of some factors of production
      Businesses
      Produce goods and services to exchange for revenues (money)
      Use revenues to purchase factors of production
      Governments
      In exchange for taxes, governments provide public services that would not be provided by business or would be produced only for those who could afford them
    • Copyright © Cengage Learning. All rights reserved.
      1 | 9
      The Circular Flow in Our Mixed Economy
    • Copyright © Cengage Learning. All rights reserved.
      1 | 10
      Types of Economies (cont’d)
      Command economies
      Economic systems in which the government decides what will be produced, how it will be produced, who gets what is produced, and who owns and controls the major factors of production
      Socialism
      Key industries (e.g., transportation, utilities, and banking) are owned and controlled by the government
      Small-scale private businesses may be permitted and workers may choose their own occupations
      Production is based on national goals, and distribution is controlled by the state
      Intent is the equitable distribution of income, elimination of poverty, social services to all who need them, elimination of the economic waste of capitalistic competition
    • Copyright © Cengage Learning. All rights reserved.
      1 | 11
      Types of Economies (cont’d)
      Command economies (cont’d)
      Communism
      All factors of production are owned and controlled by the government as proxy for ownership by all citizens
      Production is based on centralized state planning to meet the needs of the state and not necessarily the needs of its citizens
      The state dictates occupational choices and sets prices and wages
      Intent is to create Karl Marx’s concept of a classless society where all contribute according to their ability and receive benefits according to their needs.
    • Copyright © Cengage Learning. All rights reserved.
      1 | 12
      Measuring Economic Performance
      Productivity
      The average level of output per worker per hour
      Economic indicators
      Gross domestic product (GDP)
      The total value of all goods and services produced by all people within the boundaries of a country during a one-year period
      Inflation
      A general rise in the level of prices
    • Copyright © Cengage Learning. All rights reserved.
      1 | 13
      The Business Cycle
      The recurrence of periods of growth and recession in a nation’s economic activity
      Recession
      Two consecutive three-month periods of decline in a country’s gross domestic product
      Depression
      A severe recession that lasts longer than a recession
      Monetary policies
      Federal Reserve decisions that determine the size of the supply of money in the nation and the level of interest rates
    • Copyright © Cengage Learning. All rights reserved.
      1 | 14
      The Business Cycle (cont’d)
      Fiscal policy
      Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending
      Federal deficit
      A shortfall created when the federal government spends more in a fiscal year than it receives
      National debt
      The total of all federal deficits
    • Copyright © Cengage Learning. All rights reserved.
      1 | 15
      Types of Competition
      Rivalry among businesses for sales to potential customers
      Perfect (or pure) competition
      The market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product
      Supply: The quantity of a product that producers are willing to sell at each of various prices
      Demand: The quantity of a product that buyers are willing to purchase at each of various prices
      Market Price (Equilibrium): The price at which the quantity demanded is exactly equal to the quantity supplied
    • Copyright © Cengage Learning. All rights reserved.
      1 | 16
      Types of Competition (cont’d)
      Monopolistic competition
      A market situation where there are many buyers along with a relatively larger number of sellers who differentiate their products from the products of competitors
      Product differentiation
      The process of developing and promoting differences between one’s products and all similar products
    • Copyright © Cengage Learning. All rights reserved.
      1 | 17
      Types of Competition (cont’d)
      Oligopoly
      A market situation (or industry) in which there are few sellers
      E.g., automobile manufacturers, car rental agencies, and farm implement industries
      Sizable investments are required to enter into the market
      Each seller has considerable control over price
      The market actions of one seller can have a strong effect on competitors
    • Copyright © Cengage Learning. All rights reserved.
      1 | 18
      Types of Competition (cont’d)
      Monopoly
      A market (or industry) with only one seller
      Natural monopoly
      An industry requiring huge investments in capital and within which duplication of facilities would be wasteful and thus not in the public interest
      Legal monopoly (limited monopoly)
      A monopoly created when the federal government issues a copyright, patent, or trademark protecting the owners of written materials, ideas, or product brands from unauthorized use by competitors
    • Copyright © Cengage Learning. All rights reserved.
      2 | 19
      Chapter Two
      Being Ethical and Socially Responsible
    • Copyright © Cengage Learning. All rights reserved.
      2 | 20
      Business Ethics Defined
      Ethics
      The study of right and wrong and of the morality of the choices individuals make
      An ethical decision is one that is “right” according to some standard of behavior
      Business ethics
      The application of moral standards to business situations
    • Copyright © Cengage Learning. All rights reserved.
      2 | 21
      Ethical Issues
      Fairness and honesty
      Businesspeople are expected to refrain from knowingly deceiving, misrepresenting, or intimidating others
      Organizational relationships
      A businessperson should put the welfare of others and that of the organization above their own personal welfare
      Conflict of interest
      Issues arise when a businessperson takes advantage of a situation for personal gain rather than for the employer’s interest
      Communications
      Business communications that are false, misleading, or deceptive are both illegal and unethical
    • Copyright © Cengage Learning. All rights reserved.
      2 | 22
      Factors Affecting Ethical Behavior
      Three general sets of factors appear to influence the standards of behavior in an organization
      Individual factors
      Individual knowledge of an issue
      Personal values
      Personal goals
      Social factors
      Cultural norms
      Coworkers
      Significant others
      Use of the Internet
      Opportunity
      Presence of opportunity
      Ethical codes
      Enforcement
    • Copyright © Cengage Learning. All rights reserved.
      2 | 23
      Guidelines for Making Ethical Decisions
    • Copyright © Cengage Learning. All rights reserved.
      2 | 24
      Social Responsibility
      The recognition that business activities have an impact on society and the consideration of that impact in business decision making
      Social responsibility costs money but is also good business
      How socially responsible a firm acts may affect the decisions of customers to do or continue to do business with the firm.
    • Copyright © Cengage Learning. All rights reserved.
      2 | 25
      Two Views of Social Responsibility
      Economic model
      The view that society will benefit most when business is left alone to produce and market profitable products that society needs
      Managerial attitude: social responsibility is someone else’s job; the firm’s primary responsibility is to make a profit for its shareholders
      Firms are assumed to fulfill their social responsibility indirectly by paying the taxes that are used to meet the needs of society
      Social responsibility is the problem of government, environmental groups, and charitable foundations
    • Copyright © Cengage Learning. All rights reserved.
      2 | 26
      Two Views of Social Responsibility (cont’d)
      Socioeconomic model
      The concept that business should emphasize not only profits but also the impact of its decisions on society
      The corporation is a creation of society and it must act as any responsible citizen would
      Firms take pride in their social responsibility obligations
      It is in the best interest of firms to take the initiative in social responsibility matters
    • Copyright © Cengage Learning. All rights reserved.
      2 | 27
      The Pros and Cons of Social Responsibility
      Arguments for increased social responsibility:
      Because business is part of our society, it cannot ignore social issues.
      Business has the technical, financial, and managerial resources needed to tackle today’s complex social issues.
      By helping resolve social issues, business can create a more stable environment for long-term profitability.
      Socially responsible decision making by firms can prevent increased government intervention, which would force businesses to do what they fail to do voluntarily.
    • Copyright © Cengage Learning. All rights reserved.
      2 | 28
      The Pros and Cons of Social Responsibility (cont’d)
      Arguments against increased social responsibility
      Business managers are primarily responsible to stockholders, so management must be concerned with providing a return on owners’ investments.
      Corporate time, money, and talent should be used to maximize profits, not to solve society’s problems.
      Social problems affect society in general, so individual businesses should not be expected to solve these problems.
      Social issues are the responsibility of government officials who are elected for that purpose and who are accountable to the voters for their decisions.
    • Copyright © Cengage Learning. All rights reserved.
      2 | 29
      Consumerism (cont’d)
      The Six Basic Rights of Consumers
    • Copyright © Cengage Learning. All rights reserved.
      2 | 30
      Concern for the Environment
      Pollution
      The contamination of water, air, or land through the actions of people in an industrialized society
      Environmental Protection Agency (EPA)
      The federal agency charged with enforcing laws affecting the environment
      Safeguarding the environment requires
      Environmental legislation
      Voluntary compliance
      EPA enforcement actions
    • Copyright © Cengage Learning. All rights reserved.
      2 | 31
      Concern for the Environment (cont’d)
      Water pollution
      Water quality has improved in recent years, but high levels of toxic pollutants are still found in some waters
      Pollutants threaten the health of both people and wildlife
      Cleanup is complicated and costly because of runoff and toxic contamination
      Acid rain from sulfur emissions of industrial smokestacks is contributing to the deterioration of coastal waters, lakes, and marine life
    • Copyright © Cengage Learning. All rights reserved.
      2 | 32
      Concern for the Environment (cont’d)
      Air pollution
      Aviation emissions of carbon dioxidein the upper atmosphere are contributing to global warming
      Carbon monoxide and hydrocarbons emitted by motor vehicles and smoke and other pollutants emitted by manufacturing plants can be partially eliminated through pollution-control devices
      Weather and geography can contribute to air pollution
    • Copyright © Cengage Learning. All rights reserved.
      2 | 33
      Concern for the Environment (cont’d)
      Land pollution
      Fundamental issues are how to restore damaged or contaminated land and how to protect unpolluted land from future damage
      Problem is worsening because technology produces chemical and radioactive waste
      There is a shortage of landfill space for waste disposal
      Incinerators help solve the landfill shortage problem, but they produce toxic ash
      Other causes of land pollution include strip-mining, nonselective cutting of forests, development of agriculture land for housing and industry
      The EPA has been criticized for its handling of the $1.6 billion Superfund created in 1980 by Congress
    • Copyright © Cengage Learning. All rights reserved.
      2 | 34
      Concern for the Environment (cont’d)
      Noise pollution
      Excessive noise can do physical harm
      Ways to reduce noise levels
      Isolating the source of the noise
      Modifying machinery and equipment
      If noise cannot be reduced, workers can be protected by wearing noise-reduction gear
    • Copyright © Cengage Learning. All rights reserved.
      3| 35
      Chapter Three
      Exploring Global
      Business
    • Copyright © Cengage Learning. All rights reserved.
      3 | 36
      The Basis for International Business
      International business
      All business activities that involve exchanges across national boundaries
      Some countries are better equipped than others to produce particular goods or services
      Absolute advantage
      The ability to produce a specific product more efficiently than any other nation
      Comparative advantage
      The ability to produce a specific product more efficiently than any other product
      Goods and services are produced more efficiently when each country specializes in the products for which is has a comparative advantage
    • Copyright © Cengage Learning. All rights reserved.
      3 | 37
      The Basis for International Business (cont’d)
      Countries trade when they each have a surplus of the product they specialize in and want a product the other country specializes in
      Exporting
      Selling and shipping raw materials or products to other nations
      Importing
      Purchasing raw materials or products in other nations and bringing them into one’s own country
    • Copyright © Cengage Learning. All rights reserved.
      3 | 38
      The Basis for International Business (cont’d)
      Balance of trade
      The total value of a nation’s exports minus the total value of its imports over some period of time
      Trade deficit
      A negative (unfavorable) balance of trade—imports exceed exports in value
      Balance of payments
      The total flow of money into a country minus the total flow of money out of that country over a period of time
    • Copyright © Cengage Learning. All rights reserved.
      3 | 39
      U.S. International Trade in Goods
      Source: U.S. Department of Commerce, International Trade Administration, U.S. Bureau of Economic Analysis, http://bea.gov/international/bp_web/simple.cfm?anon=78260&table_id=1&area_id=3, accessed September 18, 2008.
    • Copyright © Cengage Learning. All rights reserved.
      3 | 40
      Types of Trade Restrictions
      Import duty (tariff)
      A tax levied on a particular foreign product entering a country
      Revenue tariffs are imposed to generate income for the government
      Protective tariffs are imposed to protect a domestic industry by keeping the prices of imports at or above the price of domestic products
      Dumping
      The exportation of large quantities of a product at a price lower than that of the same product in the home market
    • Copyright © Cengage Learning. All rights reserved.
      3 | 41
      Types of Trade Restrictions (cont’d)
      Nontariff barriers
      Nontax measures imposed by a government to favor domestic over foreign suppliers
      Import quota—a limit on the amount of a particular good that may be imported during a given time
      Embargo—a complete halt to trading with a particular nation or in a particular product
      Foreign exchange control—restriction on amount of foreign currency that can be purchased or sold
    • Copyright © Cengage Learning. All rights reserved.
      3 | 42
      Types of Trade Restrictions (cont’d)
      Nontariff barriers (cont’d)
      Currency devaluation—the reduction of the value of a nation’s currency relative to the currencies of other nations
      Bureaucratic red tape—a subtle form of trade restriction that imposes unnecessarily burdensome and complex standards and requirements for imported goods
      Cultural attitudes—can impede acceptance of products in foreign countries
    • Copyright © Cengage Learning. All rights reserved.
      3 | 43
      Reasons for and Against Trade Restrictions
      FOR
      To equalize a nation’s balance of payments
      To protect new or weak industries
      To protect national security
      To protect the health of citizens
      To retaliate for another country’s trade restrictions
      To protect domestic jobs
      AGAINST
      Higher prices for consumers
      Restriction of consumers’ choices
      Misallocation of international resources
      Loss of jobs
    • Copyright © Cengage Learning. All rights reserved.
      3 | 44
      Value of U.S. Merchandise Exports and Imports, 2007
      Source: U.S. Department of Commerce, International Trade Administration, http://www.census.gov/foreign-trade/statistics/
      highlights/top/top0712.html, accessed September 22, 2008.
    • Copyright © Cengage Learning. All rights reserved.
      3 | 45
      The General Agreement on Tariffs and Trade and the World Trade Organization
      General Agreement on Tariffs and Trade (GATT)
      International organization of 153 nations dedicated to reducing or eliminating tariffs and other trade barriers
      Most-favored-nation status (MFN)—Each member of GATT was to be treated equally by all other members
      Kennedy Round, Tokyo Round, Uruguay Round, Doha Round
      World Trade Organization (WTO)
      Created in the Uruguay Round of GATT negotiation as a successor to GATT
      WTO oversees GATT provisions, has judicial powers to meditate trade disputes arising from GATT rules and exerts more binding authority than GATT
    • 3 | 46
      Methods of Entering International Business
      Licensing
      A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation
      Advantage
      It allows expansion into foreign markets with little or no direct investment
      Disadvantages
      The product image may be damaged if standards are not upheld
      The original producer does not gain foreign marketing experience
      Copyright © Cengage Learning. All rights reserved.
    • 3 | 47
      Methods of Entering International Business (cont’d)
      Joint ventures
      A partnership formed to achieve a specific goal or to operate for a specific period of time
      Advantages
      Immediate market knowledge and access
      Reduced risk
      Control over the product attributes
      Disadvantages
      Complexity of establishing agreements across national borders
      High level of commitment required of all parties involved
      Copyright © Cengage Learning. All rights reserved.
    • 3 | 48
      Methods of Entering International Business (cont’d)
      Totally owned facilities
      Production and marketing facilities in one or more foreign nations
      Advantage
      Direct investment provides complete control over operations
      Disadvantage
      Risk is greater than that of a joint venture
      Two forms
      Building new facilities in the foreign country
      Purchasing an existing firm in the foreign country
      Copyright © Cengage Learning. All rights reserved.
    • 3 | 49
      Methods of Entering International Business (cont’d)
      Strategic alliances
      Partnerships formed to create competitive advantage on a worldwide basis
      Trading companies
      Firm that provide a link between buyers and sellers in different countries
      Take title to products and perform all the activities necessary to move the products from one country to another
      Copyright © Cengage Learning. All rights reserved.
    • 3 | 50
      Methods of Entering International Business (cont’d)
      Countertrade
      An international barter transaction
      Avoids restrictions on converting domestic currency to foreign currency
      Multinational enterprise
      A firm that operates on a worldwide scale without ties to any specific nation or region
      Copyright © Cengage Learning. All rights reserved.
    • Copyright © Cengage Learning. All rights reserved.
      3 | 51
      Financing International Business
      The Export-Import Bank of the United States (Eximbank)
      An independent agency of the U.S. government whose function it is to assist in financing the exports of American firms
      Multilateral Development Bank (MDB)
      An internationally supported bank that provides loans to developing countries to help them grow
      World Bank, Inter-American Development Bank (IDB), Asian Development Bank (ADB), African Development Bank (AFDB), European Bank for Reconstruction and Development (EBRD)
      The International Monetary Fund (IMF)
      An international bank with 185 member nations that makes short-term loans to developing countries experiencing balance-of-payment deficits
    • Copyright © Cengage Learning. All rights reserved.
      4 | 52
      Chapter Four
      Choosing a Form of
      Business Ownership
    • Copyright © Cengage Learning. All rights reserved.
      4 | 53
      Sole Proprietorships
      A business that is owned (and usually operated) by one person
      The simplest form of business ownership and the easiest to start
      Many large businesses began as a small struggling sole proprietorships
      The most widespread form of business ownership
    • Copyright © Cengage Learning. All rights reserved.
      4 | 54
      Relative Percentages of Sole Proprietorships, Partnerships, and Corporations in the U.S.
      Sole proprietorships are most common in retailing, agriculture, and the service industries
      Source: U.S. Bureau of the Census, Statistical Abstract of the United States, Washington, D.C., 2008, p. 487 (www.census.gov).
    • Copyright © Cengage Learning. All rights reserved.
      4 | 55
      Advantages and Disadvantages of Sole Proprietorships
      ADVANTAGES
      Ease of start-up and closure
      Pride of ownership
      Retention of all profits
      Flexibility of being your own boss
      No special taxes
      DISADVANTAGES
      Unlimited liability
      A legal concept that holds a business owner personally responsible for all the debts of the business
      Lack of continuity
      Lack of money
      Limited management skills
      Difficulty in hiring employees
    • A voluntary association of two or more persons to act as co-owners of business for profit
      Less common form of ownership than sole proprietorship or corporation
      No legal limit on the maximum number of partners; most have only 2
      Large accounting, law, and advertising partnerships have multiple partners
      Partnerships are usually a pooling of special talents or the result of a sole proprietor taking on a partner
      Copyright © Cengage Learning. All rights reserved.
      4 | 56
      Partnerships
    • Copyright © Cengage Learning. All rights reserved.
      4 | 57
      Types of Partners
      General partner
      A person who assumes full or shared responsibility for operating a business
      General partnership: a business co-owned by two or more general partners who are liable for everything the business does
      Limited partner
      A person who contribute capital to a business but has no management responsibility or liability for losses beyond the amount he or she invested in the partnership
      Limited partnership: a business co-owned by one or more general partners who manage the business and limited partners who invest money in it
      Master limited partnership (MLP): a business partnership that is owned and managed like a corporation but taxed like a partnership
    • Copyright © Cengage Learning. All rights reserved.
      4 | 58
      Advantages and Disadvantages of Partnerships
      DISADVANTAGES
      Unlimited liability
      Management disagreements
      Lack of continuity
      Frozen investment
      ADVANTAGES
      Ease of start-up
      Availability of capital and credit
      Personal interest
      Combined business skills and knowledge
      Retention of profits
      No special taxes
    • Copyright © Cengage Learning. All rights reserved.
      4 | 59
      Corporations
      An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts
      There are 5.6 million corporations in the U.S.
      They comprise only 20% of all businesses, but they account for 83.8 % of sales revenues
    • Copyright © Cengage Learning. All rights reserved.
      4 | 60
      Corporate Ownership
      Corporate ownership
      Stock
      The shares of ownership of a corporation
      Stockholder
      A person who owns a corporation’s stock
      Closed corporation
      A corporation whose stock is owned by relatively few people and is not sold to the general public
      Open corporation
      A corporation whose stock is bought and sold on security exchanges and can be purchased by any individual
    • Copyright © Cengage Learning. All rights reserved.
      4 | 61
      Forming a Corporation
      Incorporation
      The process of forming a corporation
      Most experts recommend consulting a lawyer
    • Copyright © Cengage Learning. All rights reserved.
      4 | 62
      Forming a Corporation (cont’d)
      Where to incorporate
      Businesses can incorporate in any state they choose
      Some states offer fewer restrictions, lower taxes, and other benefits to attract new firms
      Domestic corporation
      A corporation in the state in which it is incorporated
      Foreign corporation
      A corporation in any state in which it does business except the one it which it is incorporated
      Alien corporation
      A corporation chartered by a foreign government and conducting business in the U.S.
    • Copyright © Cengage Learning. All rights reserved.
      4 | 63
      Forming a Corporation (cont’d)
      Articles of incorporation
      A contract between the corporation and the state in which the state recognizes the formation of the artificial person that is the corporation
      Articles of incorporation includes
      Firm’s name and address
      Incorporators’ names and addresses
      Purpose of the corporation
      Maximum amount of stock and types of stock to be issued
      Rights and privileges of stockholders
      Length of time the corporation is to exist
    • Copyright © Cengage Learning. All rights reserved.
      4 | 64
      Forming a Corporation (cont’d)
      Stockholders’ rights
      Common stock
      Stock owned by individuals or firms who may vote on corporate matters but whose claims on profit and assets are subordinate to the claims of others
      Preferred stock
      Stock owned by individuals or firms who usually do not have voting rights but whose claims on dividends are paid before those of common-stock holders
      Dividend
      A distribution of earnings to the stockholders of a corporation
      Proxy
      A legal form listing issues to be decided at a stockholders’ meeting and enabling stockholders to transfer their voting rights to some other individual or individuals
    • Copyright © Cengage Learning. All rights reserved.
      4 | 65
      Forming a Corporation (cont’d)
      Organizational meeting
      The last step in forming a corporation
      The incorporators and original stockholders meet to elect their first board of directors
      Board members are directly responsible to stockholders for how they operate the firm
    • Copyright © Cengage Learning. All rights reserved.
      4 | 66
      Corporate Structure
      Board of directors
      The top governing body of a corporation, the members of which are elected by the stockholders
      Responsible for setting corporate goals, developing strategic plans to meet those goals, and the firm’s overall operation
      Outside directors: experienced managers or entrepreneurs from outside the corporation who have specific talents
      Inside directors: top managers from within the corporation
    • Copyright © Cengage Learning. All rights reserved.
      4 | 67
      Corporate Structure (cont’d)
      Corporate officers
      The chairman of the board, president, executive vice presidents, corporate secretary, treasurer, and any other top executive appointed by the board
      Implement the chosen strategy and direct the work of the corporation, periodically reporting results to the board and stockholders
    • Copyright © Cengage Learning. All rights reserved.
      4 | 68
      Hierarchy of Corporate Structure
      Stockholders exercise a great deal of influence through their right to elect the board of directors
    • Copyright © Cengage Learning. All rights reserved.
      4 | 69
      Advantages and Disadvantages of Corporations
      ADVANTAGES
      Limited liability
      Each owner’s financial liability is limited to the amount of money that he or she has paid for the corporation’s stock
      Ease of raising capital
      Ease of transfer of ownership
      Perpetual life
      Specialized management
      DISADVANTAGES
      Difficulty and expense of formation
      Government regulation and increased paperwork
      Conflict within the corporation
      Double taxation
      Lack of secrecy
    • Copyright © Cengage Learning. All rights reserved.
      4 | 70
      Advantages and Disadvantages
    • S-corporations
      A corporation that is taxed as though it were a partnership (income is taxed only as the personal income of stockholders)
      Advantages
      Avoids double taxation of a corporation
      Retains the corporation’s legal benefit of limited liability
      S-corporation criteria
      No more than 100 stockholders allowed
      Stockholders must be individuals, estates, or exempt organizations
      There can be only one class of outstanding stock
      The firm must be a domestic corporation
      There can be no nonresident-alien stockholders
      All stockholders must agree to the decision to form an S-corporation
      Copyright © Cengage Learning. All rights reserved.
      4 | 71
      Special Types of Business Ownership
    • Copyright © Cengage Learning. All rights reserved.
      4 | 72
      Special Types of Business Ownership (cont’d)
      Limited-liability company (LLC)
      A form of business ownership that provides limited-liability protection and is taxed like a partnership
      Advantages
      Avoids double taxation of a corporation
      Retains the corporation’s legal benefit of limited liability
      Provides more management flexibility
      Difference between LLC and S-corporation
      LLCs not restricted to 100 stockholders
      LLCs have fewer restrictions on who can be a stockholder
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      Advantages and Disadvantages
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      Special Types of Business Ownership (cont’d)
      Government-owned corporations
      A corporation owned and operated by a local, state, or federal government
      Purpose
      To ensure that a public service is available
      Examples
      Tennessee Valley Authority (TVA), the National Aeronautics and Space Administration (NASA), and the Federal Deposit Insurance Corporation (FDIC)
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      Special Types of Business Ownership (cont’d)
      Not-for-profit corporations
      Corporations organized to provide social, educational, religious, or other services, rather than to earn a profit
      Charities, museums, private schools, and colleges are organized as not-for-profits primarily to ensure limited liability
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      Cooperatives, Joint Ventures, Syndicates
      Cooperatives
      Associations of individuals or firms whose purpose is to perform some business function for its members
      Members benefit from the efficiencies of the cooperatives’ activities, such as reducing unit costs by making bulk purchases and coordinating services such as transportation, processing, and marketing products
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      Cooperatives, Joint Ventures, Syndicates (cont’d)
      Joint ventures
      Agreements between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time
      Example: Wal-Mart and India’s Bharti Enterprises
      Syndicates
      Temporary associations of individuals or firms organized to perform a specific task that requires a large amount of capital
      Most commonly used to underwrite large insurance policies, loans, and investments
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      Corporate Growth
      Growth from within
      Introducing new products
      Entering new markets
      Growth through mergers and acquisitions
      Merger: the purchase of one corporation by another; essentially the same as an acquisition
      Hostile takeover: a situation in which the management and board of directors of the firm targeted for acquisition disapprove of the merger
      Tender offer: an offer to purchase the stock of a firm targeted for acquisition at a price just high enough to tempt stockholders to sell their shares
      Proxy fight: a technique used to gather enough stockholder votes to control the targeted company
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      4 | 79
      Three Types of Growth by Merger
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      Chapter Five
      Small Business, Entrepreneurship,
      and Franchises
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      Small Business: A Profile
      A business that is independently owned and operated for profit and is not dominant in its field
      SBA “smallness” guidelines
      Manufacturing—500 employees
      Wholesale trade—100 employees
      Agriculture—$750,000
      Retail trade—$6.5 million
      General and heavy construction—$31 million
      Dredging—$18.5 million
      Special trade construction—$13 million
      Travel agencies—$3.5 million (commissions & other income)
      Business and personal services—$6.5 million
      Architectural, engineering, surveying, etc.—$4.5 million
      Dry cleaning, carpet cleaning—$4.5 million
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      Small Business: A Profile (cont’d)
      Small-business sector
      There are about 27.2 million businesses in the U.S.
      Just over 17,000 employ more than 500 workers
      In the last decade, the number of small businesses increased 49 percent
      Part-time entrepreneurs have increase fivefold and account for one-third of all small businesses
      Two-thirds of new businesses survive at least two years, 44 percent survive at least four years, and 31 percent survive at least seven years
      The primary reason for these failures is due to poor management stemming from a lack of business know-how
      Small businesses provide over 50% of the jobs in the U.S.
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      Industry Group-Size Standards
      Source:http://www.sba.gov/services/contractingopportunities/sizestandardstopics/summarywhatis/, accessed October 3, 2008.
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      The People in Small Businesses: The Entrepreneurs
      Why people go into business for themselves
      The “entrepreneurial spirit”
      The desire for independence
      The desire to determine one’s own destiny
      The willingness to find and accept a challenge
      Personal background
      Age
      “Had enough” of working for someone else
      High-tech opportunities, especially for teens
      Losing a job and deciding to start a business
      An idea for a new product
      An opportunity presents itself
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      How Old Is the Average Entrepreneur?
      Source: Data developed from and provided by the National Federation of Independent Business Foundation and sponsored by the American Express Travel Related Services Company, Inc.
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      Why Some Entrepreneurs and Small Businesses Fail
      Lack of capital and cash-flow problems
      Lack of management skills
      Overexpansion
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      The Importance of Small Businesses in Our Economy
      Providing technological innovation
      Innovation among small-business workers is higher than among workers in large businesses
      Small firms produce 2.5 times as many innovations as large firms relative to the number of persons employed
      More than half of the major technological advances of the 20th century originated with individual inventors and small businesses
      Inventions may spark new industries or contribute to established industries
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      The Importance of Small Business in Our Economy (cont’d)
      Providing employment
      Small firms hire a larger proportion of younger workers, older workers, women, and part-time workers
      Small businesses provide 67% of workers with their first job and initial job skills
      Small businesses represent 99.7% of all employers and employ about 50% of the private work force
      Small businesses provide 2/3 of the net new jobs added to the economy
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      The Importance of Small Business in Our Economy (cont’d)
      Providing competition
      Small firms can compete with large firms, forcing the larger firm to become more efficient and responsive to customer needs
      Filling needs of society and other businesses
      Small firms can meet the special needs of smaller groups of customers
      Small firms can act as specialized suppliers of goods and services to larger businesses
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      The Pro and Cons of Smallness
      ADVANTAGES
      Personal relationships with customers and employees
      Ability to adapt to change
      Simplified recordkeeping
      Independence
      Advantages of sole proprietorships
      Keeping all profits
      Ease and low cost of going into business
      Keeping business information secret
      DISADVANTAGES
      Risk of failure
      Limited potential
      Limited ability to raise capital
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      Sources of Capital for Entrepreneurs
      Source: Data developed from and provided by the National Federation of Independent Business Foundation and sponsored by the American Express Travel Related Services Company, Inc.
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      Developing a Business Plan
      Business plan—A carefully constructed guide for the person starting a business
      Three basic purposes
      Communication
      Management
      Planning
      Accuracy and realistic expectations are crucial
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      The Small Business Administration
      A governmental agency that assists, counsels, and protects the interests of small business in the U.S.
      SBA management assistance
      Management courses and workshops
      Service Core of Retired Executives (SCORE)
      Help for minority-owned small businesses
      Small-business institutes
      Small-business development centers
      SBA publications
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      The Small Business Administration (cont’d)
      SBA financial assistance
      Regular business loans
      Loans are made by private banks but are partially guaranteed by the SBA
      Small-business investment companies
      Venture capital: money invested in small firms that have the potential to become very successful
      Small business investment companies: privately owned firms that provide venture capital to small enterprises that meet their investment standards
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      Franchising
      Franchise
      A license to operate an individually owned business as though it were part of a chain of outlets or stores
      Franchising
      The actual granting of a franchise
      Franchisor
      An individual or organization granting the franchise
      Franchisee
      A person or organization purchasing a franchise
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      Types of Franchises
      A manufacturer authorizes retailers to sell a certain brand-name item
      A producer licenses distributors to sell a product to retailers
      A franchisor supplies brand names, techniques, or services instead of a complete product
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      Franchising (cont’d)
      Are franchises successful?
      The success rate for franchises is higher than that for other small businesses
      94 percent of franchise owners report that they are successful
      Too rapid expansion, inadequate capital or management skills, or other problems can cause franchises to fail
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      Advantages of Franchising
      TO THE FRANCHISOR
      Fast and well controlled distribution of its products
      No need to construct and operate its own outlets
      More working capital available for expanded production and advertising
      Franchising agreements maintain product and quality standards
      Motivated work force of franchisees
      TO THE FRANCHISEE
      Opportunity to start a proven business with limited capital
      Guaranteed customers
      Franchisor available for advice and guidance
      Materials for local promotional campaigns and participation in national campaigns
      Cost savings when purchasing in cooperation with other franchisees
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      Disadvantages of Franchising
      TO THE FRANCHISOR
      Failure of the franchisee to operate franchise properly
      Disputes with and lawsuits by franchisees over the terms of the franchise
      TO THE FRANCHISEE
      Franchisor retains a large amount of control over the franchisee’s activities
      Franchisor opening competing franchises within the franchisee’s market