Chapter 3 Review by: justin bell

Section 1: Forms Of Business Organizations.

There are three main forms of business organizations in the economy today- Sole Partnership, Partnership, and Corporation. each of these have there own advantages, disadvantages, and way how to form them.

Sole Proprietorship: A business run by a single individual. These are the smallest form of businesses, they also have the smallest fraction of total sales. Although the size might be on the small side, they bring in about one-fifth of total profits by all businesses.

Forming a Proprietorship: This is the easiest form of business to form because all it takes is the occasional business license and small fees. A proprietorship can be run out of a garage, from the internet, or from an office in a professional building.

Advantages of a Proprietorship: some advantages include, easy management, manager can keep the profits, doesnt pay sepereat income business taxes, pyscological satisfaction of people being their own boss

Disadvantages of a proprietorship: The main disadvantage of a proprietorship is unlimited liability. any losses or debts the business has, it will be the owners responsibility. if the business fails, the owners personal items may be taken to satisfy the business debts. another disadvantage is that it is very difficult to raise a financial capital. size and efficiency can also be a disadvantage. the last disadvantage is limited life. this means if the owner quits, dies, or sells the business, the firm legally ceases or stops.

Partnerships: Apartnership is a business jointly owned by two or more persons. Partnershipps have many of the same advantages and disadvantages at sole proprietorshps. partnerships is the second smallest proportion of sales and net income.

Types Of Partnerships: General and Limited are the main types of partnerships. in a general partnership, all partners are responsible for the finacial obligations and mangenment. in a limited partnership, at least one person is inactive in the daily running of the business. likewise, the limited partner is only responisnble for the debts of the business.

Forming A Partnership: Articles of partnerships are drawn up to specify arrangemnets between partners. these papers include how the money will be distributed, how if the business ends, where the proporty will go. they also may state if any other partners can be added to the business.

Advantages: The advantages are very similar to that of a sole proprietorship. some that are the same include ease of start up, and also ease of management. However there quit a few that a partnership has and a sole proprietorship doesn't such as, lack of special taxes which makes the financial capital greater than the proprietorship. another advantage is the efficiency increases with a larger size.

Disadvantages:: In a general partnership, is that each partner is fully and personally responsible for any losses to the business. In the case of a limited partnership however, a partners responsibility's of the debts is determined by his or her investment in the business. another disadvantage is the the partners could have a dispute and the business is a bust. the final disadvantage is just like the proprietorship, it has limited life.

Corporation: A corporation is a business organization recognized by law as a separate legal entity with all the rights of an individual. With is status, the corporation can enter legal contracts, buy and sell property, and to sue and be sued. These only account for about one fifth of all businesses in the U.S. however, they are a majority of all sales.

Forming a Corporation: Unlike a sole proprietorship or partnership, this a very formal and lehal arrangement. Anyone who wants to form a corporation will have to file for permission from the national government or state where the headquaters will be. When approoved, a charter is granted. a charter is a government document that gives permission to form a corporation. within that charter, it also specifys the number of shares or stock these shareholders will recives a dividend or a small amount from the corporation.

Corporate Structure: Common and Perferd Stock. common stockpeople can vote on the board and they get theie dividends last perferd stock people dont get to vote for the boaerd but they get their dividends first

Advantages: Some advantages of owning a corporation include the ease of rasing finial capital, unlimited life, and the most important, limited liability for its owners. this means that the company itself, not its owners is fully responsible for its obligations.

Disadvantages: The first disadvantage is the double taxation this means that the stockholders dividends get taxed twice. another disadvantage of the corporation structure is level of difficulty and expense of getting a charter. some charters can cost several thousand dollars. a third disadvantage of a corporation is that the shareholders have very little say in how the business is run. finally a corporation will have more government regulation than any smaller business.

Section 2: Business Growth and Expansion

There are two main ways to grow and expand your business; reinvestment or merging.

Growth Through Reinvestment: Using the income statement, businesses can use the revenue collected from sales to grow.

Estimating Cash Flows: To estimate your businesses cash flow, you must look at the net income, or the funds left over from all the business expenses, as well as the depreciation costs or, the non-cash charge a business makes for all wear and tear on its goods. businesses prefer an incease in depreciation even though it would lower the amount before taxes it would increase the cash flow.

Reinvesting Cash Flows: The board of a corporation may choose to pay dividends to the shareholders for their investments however, the board of a proprietorship or partnership may choose to keep their cash flows and put it towards a new plant, hire more people or go into new technologies. The more the business reinvests from cash flow, the larger it will get. a positive cash flow is one of the first things investors look for in a business.

Growth Through Mergers:  When two companies merge, one gives up its separate legal identity. However the name might resemble both companies.

Types of Mergers: There are Two types of mergers, vertical and horizontal. The first is an horizontal merger which is when two companies produce the same goods come together. The second merger is the vertical merger. this is when companies involved in different stages of manufacturing or marketing join forces.

Reasons For Merging: Merging happens for a variety of reasons. A business ma merge because it wants to grow faster, wants to become more efficient, to acquire or deliver a better product, to wipe out a rival or to change its image. A company might choose to merge to lose its corporate identity.

Conglomerates: A conglomerate is a firm that has more than four businesses each making unrelated products and none responsible for its sales. Diversification one one of the main reasons for conglomerate mergers.

Multinationals: A multinational is a corporation that has manufacturing or service in different countries. Multinationals pay taxes in each country. Multinationals are good because they have the power to move resources, goods, services, and financial capital across national boarders. Multinationals are usually welcome because they create jobs where there needed and they transfer new technology. multinationals can abuse their power by paying low wages to workers, exporting scarce natural resources, or interfering with local business. The advantages of multinationals outweigh the disadvantages.

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