Economics chapter 7


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Economics chapter 7

  1. 1. WHAT ARE THE ADVANTAGES OF ESTABLISHINGA SOLE PROPRIETORSHIP?Sole proprietorship: a business owned by one personOne advantages of a sole proprietorship is that there is ease at starting the business. They require a fairly light amount of legal work and financial capital at startup.Another advantage is full control. With sole ownership, it’s easier to solve problems quickly and take advantage of opportunities. If there are too many workers it’s easier to fix it.The third advantage is profit. The owner keeps all profit earned. When it isn’t a sole proprietorship, the owner has to share benefits and profits earned with the other owner. 2
  2. 2. WHAT ARE THE DISADVANTAGES OFESTABLISHING A SOLE PROPRIETORSHIP?With great freedom to own a business by yourself, comes great responsibility.Unlimited liability: sole proprietors are fully responsible for the debts and paying for the business to stay in tact.Sole responsibility: At first, sole owners will have to do all the dirty work. Accounting, advertising, market analyzing and cleaning.Limited growth: due to collateral, which is anything of value to repay the bank with if you are unable to keep the business going, the amount of money sole owners can borrow is limited.Lack of longevity: longevity is the amount of time the business operates. It is limited in sole proprietorships because they depend on one person, who can become sick, give up on the commitment and/or not be as competent about how running a business works. 3
  3. 3. HOW DO GENERAL PARTNERSHIPS ANDLIMITED PARTNERSHIPS DIFFER?In general partnerships, both of the owners make business decisions and have unlimited liability.Whereas in limited partnerships, there is one owner who gets financial aid from investors. In limited partnerships there is limited liability. 4
  4. 4. WHAT ARE THE ADVANTAGES OF ORGANIZING APARTNERSHIP?Just like in sole proprietorship, there is ease of startup. There is limited government interference and to prevent trouble in the partnership later, the partners write an agreement.In a partnership, there is specialization. One partner could handle some responsibilities, while the other handles the left over responsibilities.Shared decision making makes it easier on both partners. Shared decision making makes it to where the business owners can minimize the amount of mistakes by consulting with each other.Shared business loss makes it easier on both because neither of them lose as much as they would’ve if they were sole business owners. Creditors are more likely to make bigger loans to partnerships than they would to sole proprietors. 5
  5. 5. WHAT ARE THE DISADVANTAGES OFORGANIZING A PARTNERSHIP?In general partnerships, there is unlimited liability which is dangerous because it can lead to an overall crash in their personal and business budgets. Also, if one person refuses to pay their dues, the rest have to pick up the slack and pay it for themselves.The potential for conflict is much greater in partnerships. Owners can have personality clashes, different management styles, disagreements, and poor communication to each other.Lack of longevity is a problem in partnerships because partnerships can have problems and one owner might not be able to take it anymore and want to leave. Also, If one person leaves a 3 person partnership, then the other two have to find another person who can and will assume the responsibilities of the one that left. 6
  6. 6. HOW IS A CORPORATION FORMED AND WHAT ARE THECHARACTERISTICS OF A CORPORATION?Corporation: a business that acts like an individual.Corporations are able to own property, hire people, make contracts, sue, be sued, pay taxes, and make and sell products.Has to have a license, articles of incorporation and corporate charter, which grants the formation of a corporation.Has a hiring tree…owners > board of directors > corporate officers > vice presidents > department heads > employeesRaise funds by selling stock which is split into portions called shares. 7
  7. 7. HOW DO VERTICAL COMBINATIONS DIFFER FROMHORIZONTAL AND CONGLOMERATE COMBINATIONS?Horizontal combination – merger between two or more companies producing the same goodConglomerate combinations – corporation made of several companies that are involved in different markets.Vertical combination - a merger between two or more companies that are involved with many different production phases of the same good.Vertical combinations are a merger between companies that are involved with different production phases, whereas horizontal and conglomerate productions are involved with only one production phase. 8
  8. 8. WHY MIGHT A BUSINESS OWNER WANT TOOPEN A FRANCHISE?Franchise: an enterprise that uses the original company’s name to sell goods and/or services.When business owners have franchises, the name of the business is spread around, the franchisor provides access to tools and provides advertising for the parent business.Franchise agreements include upholding the reputation of the business. 9
  9. 9. WHAT IS THE CUSTOMERS ROLE IN ACOOPERATIVE?Cooperative: a business that is owned by those who use its goods and services.They are members of the cooperative.A customer can join the cooperative and invest money to get the benefits of being part of that cooperative.While in the cooperative, members share the costs of maintenance and other things the co-op might need to spend money on. 10
  10. 10. HOW DOES A NONPROFIT ORGANIZATION DIFFER FROMOTHER TYPES OF BUSINESS ORGANIZATIONS?It raises money, not for its own members, but for other things that benefit other people. Ex: raising awareness of certain causes, improving education, providing healthcare, etc.The income raised by non profit organizations isn’t taxed by the government. 11
  11. 11. CREDITSPennington, Robert Leroy. Holt Economics. Austin, Texas: Holt, Rinehart and Winston, 2003. Print. 12