Chapter 8.1 notes

Business Organization

Sole Proprietorship

a business run by one person smallest type of business organization most numerous but least profitable

Advantages of a Sole Proprietorshipease of start-upease of managementowner gets all the profitstaxes paid only on the owner’s personal

incomepsychological satisfaction of owning

one’s business/ having controlease of closing the business

Disadvantages of a sole proprietorship owner has unlimited liability – owner is

personally and fully responsible for all losses and debts of the business

Limited funds owner may not be able to hire enough

personnel or keep inventory limited managerial experience hard to attract qualified employees business has limited life – firm legally

ceases to exist when the owner dies or sells the business.

Example

Mary Kay Ash – Mary Kay Inc.Was passed up for a promotion,

decided to start own business to reward women

By 2005 was a global company with $2 billion in sales

Assignment

Pg. 231 #’s 2-5 Write the question!

Chapter 8.2 notes

Partnerships

Partnerships business jointly owned by two or

more persons. Types: general partnership – all partners

are responsible for the mgmt and financial obligations

limited partnership – at least one partner is not active in the daily running of the business.

Cont’d

Limited liability partnership (LLP) – all partners are limited and not responsible for debts or liabilities of other partners

Advantages of a Partnership

ease of start-upease of mgmtlack of special taxeseasier to raise capital through bank

loans or new partnerlarger size aids efficient operationseasier to attract talented employees

Disadvantages

Unlimited liability - partners are responsible for the acts of every partner except in a limited partnership

limited life - if a partner leaves or dies it must be dissolved and reorganized

potential for conflict

Examples

Law firmsAccounting firmsDoctors officesInteresting fact: most partnerships bring

in less than $25,000 a year

8.3/8.4 notes

Corporations

A business owned by stock-holders Stockholders/shareholders – investors

who become owners of the firm If profitable, may pay dividends

Advantages of a corporation

ease of raising capital professionals usually run firm owners have limited liability Unlimited life of corp. Easy to transfer ownership (buying/selling

stock)

Disadvantages of a corporation

Start-up cost/effort Little control of business double taxation subject to gov’t regulation

Business Consolidation

Horizontal merger – produce same product Ex: two banks; Reebok and Adidas

Vertical merger – different steps of production Ex: car co and tire co;

Conglomerate – 4 or more merge that are unrelated

Franchise

Business that licenses rights to sell it’s products to individual owners

Examples: McDonald’s, KFC/Taco Bell, Subway

Advantages

Provides good training and productsPays for advertising

Disadvantages

Can be expensiveShare profitsHave to follow rules

Non-profit Organization

Aims to benefit societyExamples: schools, churches, Salvation

Army, Red Cross

Cooperatives

Operated for benefit of owners who are also customers

3 Types: Consumer, Producer, Service

Word bank for Quiz on Ch. 8!!!!Sole proprietorshipPartnershipCorporationStockCooperativeConglomerateFranchiseUnlimited liabililtyUnlimited lifeMultinational BondNon-profit organizationHorizontal mergerVertical mergerLimited liability