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Unit 2 Microeconomics #19. Unit 2 Warm Ups #20 Key Terms Sole proprietorship- a business owned by one person Unlimited liability -when the owner is responsible.

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Presentation on theme: "Unit 2 Microeconomics #19. Unit 2 Warm Ups #20 Key Terms Sole proprietorship- a business owned by one person Unlimited liability -when the owner is responsible."— Presentation transcript:

1 Unit 2 Microeconomics #19

2 Unit 2 Warm Ups #20

3 Key Terms Sole proprietorship- a business owned by one person Unlimited liability -when the owner is responsible for the companys debts Partnership- a business owned by two or more people who share its risks and rewards Corporation- a company that is registered by a state and operates apart from its owners Limited liability- holding a firms owners responsible for no more than the capital that they have invested in it Cooperative- an organization that is owned and operated by its members Nonprofit organization- a type of business that focuses on providing service, not on making a profit Franchise- a contractual agreement to use the name and sell the products or services of a company in a designated geographic area

4 Business Organizations #22 1. Sole ProprietorshipA business owned and operated by one person. Oldest, simplest, most common type Who owns SPs? (Internet advantages)

5 Advantages of Sole Proprietorships: 1. Low Cost start up 2. Full control 3. Exclusive right to all profits

6 Sole Proprietorships 1. Low Cost Start Up Require small amount of money Involve few legal requirements Zoning LawsMust observe; not all businesses can operate in certain areas because of zoning restrictions. May have to obtain city/county licenses

7 Sole Proprietorships 2. ControlYou maintain complete control and can make quick decisions. Minimal paperwork, meetings, depends on YOU! 3. ProfitThe owner (YOU) keeps all the profits.

8 Sole Proprietorships Disadvantages: 1. Unlimited liability 2. Sole responsibility 3. Difficulty Raising Capital 4. Lack of longevity

9 Disadvantages of S.P. 1. Unlimited LiabilityYOU are personally responsible for all business debts. 2. Sole ResponsibilityYOU are responsible for ALL aspects of running your business. 3. Difficulty Raising Capital CollateralAnything of value you pledge as security for a loan.

10 Disadvantages of SP 4. Lack of LongevityThe length of a firms life or the amount of time the business operates. Ex. Your health Ex. You lose interest in the business Ex. Your competence

11 Partnerships PartnershipA business that is owned and controlled by two or more people. Ex. Small retail stores, construction companies, doctors, lawyers, accountants, etc. Two types of partnerships: 1. GeneralPartners enjoy equal decision making authority.They also have unlimited liability. 2. LimitedPartners who provide capital($) but do not play an active role in running the company. Liability is also limited.

12 Advantages of Partnerships Advantages of Partnerships: 1. Ease of start-up 2. Specialization 3. Shared decision making 4. Shared business losses

13 Advantages of Partnerships 1. Easy start up– Few government regulations Costs tend to be low Partners usually develop a partnership contract 2. SpecializationSpecific business duties can be assigned to different partners based on expertise and individual talents. Ex. One good in salesother good in accounting

14 Advantages of Partnerships 3. Shared Decision MakingPartners can minimize mistakes by consulting with each other. Can pool each others skills 4. Shared Business LossesThe sharing of losses may enable a partnership to survive a situation that might cause a sole proprietorship to fail. Example: 2 partners: Business loss $20,000: Each partner loses only $10,000 each. Sole Prop.=$20,000

15 Disadvantages of Partnerships 1. Unlimited LiabilityEach partner is responsible for debts incurred by the business. If one partner refuses to pay for his share, then the other partners are still liable for the debt. 2. Potential ConflictDisagreements or conflicts may arise among partners. Different management styles Personality conflicts

16 Disadvantages of Partnerships 3. Lack of LongevityLife of the business is dependent on the willingness and ability of the partners to continue to work together. One may decide that he/she can no longer work together as partners. Find a new partner or maybe even close the business.

17 Franchise a contractual agreement to use the name and sell the products or services of a company in a designated geographic area

18 Advantages of Franchise 1. Smaller than usual capital investment 2. Prior public acceptance of product 3. Better than average profit margins 4. Management assistance

19 Disadvantages of Franchise 1. Possible high franchiser fee 2. Some loss of independence 3. Possible difficulties in canceling contract

20 Corporations CorporationsAre companies that are formed as legally distinct from their owners and are treated as if they were individuals. Can: Hire workers, make contracts, pay taxes, sue and be sued, make & sell products.

21 Forming a Corporation Must apply for a state license known as the: articles of incorporation. Includes: name and purpose of corp. Address and headquarters Amount of $ it expects to raise Names and addresses of officers Length of time expected to exist License granted is called: corporate charter

22 Corporate Structure Structure: Owners/Shareholders Board of Directors Corporate Officers Vice Presidents Department Heads Employees

23 Organization Chart

24 Corporate Finances 7.3 StockShares that represent ownership of the firm. SharesPortions(certificates) issued. DividendsProfits paid to shareholders. Common StockAllowed to vote Preferred StockGuaranteed dividends; paid before common stock. No vote.

25 Corporate Finances 7.3 Corporate BondCertificate issued by a corporation in exchange for money borrowed. PrincipalThe actual amount of money borrowed. Ex. Buy interest Principal=$10,000 X 5%= $500 per year income InterestAmount borrower must pay for the use of the principal.

26 Advantages of Corporations Benefits to stockholders – 1. Limited Liability – 2. Can sell their shares at any time Benefits for Corporations: 1. Limited liability 2. Separation of ownership from management. 3. Capital can be raised easily 4. Longevity

27 Disadvantages of Corporations 1. Corporate charter can be expensive and difficult to obtain. 2. Government regulation 3. Slow decision making process 4. For stockholdersStockholders can earn a profit, without working for corp. 5. Corporate profits are taxed twice.


29 The Securities Language Market cap = market capitalization (price per share X number of shares outstanding). Ticker symbol = letters assigned to a particular stock. Ex. Microsoft = MSFT Stock broker = work for firms that specialize in the buying and selling of stock. Earn a profit by collecting commission and fees for each transaction. IPO = Initial Public Offering – when a stock first goes public. Googles was $85 in 2004 As of 2009? $490

30 Market Capitalization P rice per share X the number of outstanding shares. (Ex. $10/share X 1,000,000 shares=$10 million market capitalization. Large cap. Greater than 10 billion dollars in market cap. Mid cap. Between 1 billion and 5 billion dollars market cap. Small cap. 1 billion dollars or less in market cap.

31 A Few Exchange Facts NYSE Started in 1792 with 24 brokers First stock was Bank of New York To be listed: company minimum worth of $60m and $2m earned per year for last 2 years

32 Ticker Symbols Letters assigned to a particular stock. NYSE - generally 1 to 3 letters. NASDAQ - generally 4 letters. Examples: T = AT&T. INTC = Intel. TXN = Texas instruments. IBM = IBM.

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