3Key Terms Sole proprietorship- a business owned by one person Unlimited liability -when the owner is responsible for the company’s debtsPartnership- a business owned by two or more people who share its risks and rewardsCorporation- a company that is registered by a state and operates apart from its ownersLimited liability- holding a firm’s owners responsible for no more than the capital that they have invested in itCooperative- an organization that is owned and operated by its membersNonprofit organization- a type of business that focuses on providing service, not on making a profitFranchise- a contractual agreement to use the name and sell the products or services of a company in a designated geographic area
4Business Organizations #22 1. Sole Proprietorship—A business owned and operated by one person.Oldest, simplest, most common typeWho owns SP’s? (Internet advantages)
5Advantages of Sole Proprietorships: Low Cost start upFull controlExclusive right to all profits
6Sole Proprietorships 1. Low Cost Start Up— Require small amount of moneyInvolve few legal requirementsZoning Laws—Must observe; not all businesses can operate in certain areas because of zoning restrictions.May have to obtain city/county licenses
7Sole Proprietorships2. Control—You maintain complete control and can make quick decisions.Minimal paperwork, meetings, depends on YOU!3. Profit—The owner (YOU) keeps all the profits.
8Sole Proprietorships Disadvantages: Unlimited liability Sole responsibilityDifficulty Raising CapitalLack of longevity
9Disadvantages of S.P.1. Unlimited Liability—YOU are personally responsible for all business debts.2. Sole Responsibility—YOU are responsible for ALL aspects of running your business.3. Difficulty Raising Capital—Collateral—Anything of value you pledge as security for a loan.
10Disadvantages of SP4. Lack of Longevity—The length of a firm’s life or the amount of time the business operates.Ex. Your healthEx. You lose interest in the businessEx. Your competence
11PartnershipsPartnership—A 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:General—Partners enjoy equal decision making authority.They also have unlimited liability.Limited—Partners who provide capital($) but do not play an active role in running the company. Liability is also limited.
12Advantages of Partnerships Ease of start-upSpecializationShared decision makingShared business losses
13Advantages of Partnerships 1. Easy start up–Few government regulationsCosts tend to be lowPartners usually develop a partnership contract2. Specialization—Specific business duties can be assigned to different partners based on expertise and individual talents.Ex. One good in sales—other good in accounting
14Advantages of Partnerships 3. Shared Decision Making—Partners can minimize mistakes by consulting with each other.Can pool each others skills4. Shared Business Losses—The 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
15Disadvantages of Partnerships 1. Unlimited Liability—Each 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 Conflict—Disagreements or conflicts may arise among partners.Different management stylesPersonality conflicts
16Disadvantages of Partnerships 3. Lack of Longevity—Life 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.
17Franchisea contractual agreement to use the name and sell the products or services of a company in a designated geographic area
18Advantages of Franchise 1. Smaller than usual capital investment2. Prior public acceptance of product3. Better than average profit margins4. Management assistance
19Disadvantages of Franchise 1. Possible high franchiser fee2. Some loss of independence3. Possible difficulties in canceling contract
20CorporationsCorporations—Are 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.
21Forming a Corporation 7.31. Must apply for a state license known as the: articles of incorporation.Includes: name and purpose of corp.Address and headquartersAmount of $ it expects to raiseNames and addresses of officersLength of time expected to existLicense granted is called: corporate charter
24Corporate Finances 7.3Stock—Shares that represent ownership of the firm.Shares—Portions(certificates) issued.Dividends—Profits paid to shareholders.Common Stock—Allowed to votePreferred Stock—Guaranteed dividends; paid before common stock. No vote.
25Corporate Finances 7.3Corporate Bond—Certificate issued by a corporation in exchange for money borrowed.Principal—The actual amount of money borrowed. Ex. Buy interestPrincipal=$10,000 X 5%= $500 per year incomeInterest—Amount borrower must pay for the use of the principal.
26Advantages of Corporations Benefits to stockholders—1. Limited Liability2. Can sell their shares at any timeBenefits for Corporations:1. Limited liability2. Separation of ownership from management.3. Capital can be raised easily4. Longevity
27Disadvantages of Corporations 1. Corporate charter can be expensive and difficult to obtain.2. Government regulation3. Slow decision making process4. For stockholders—Stockholders can earn a profit, without working for corp.5. Corporate profits are taxed twice.
29The Securities Language Market cap = market capitalization (price per share X number of shares outstanding).Ticker symbol = letters assigned to a particular stock. Ex. Microsoft = MSFTStock 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.Google’s was $85 in 2004As of 2009? $490
30Market Capitalization Price 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.see examples on CBS Marketwatch.
31A Few Exchange Facts NYSE Started in 1792 with 24 brokers First stock was Bank of New YorkTo be listed: company minimum worth of $60m and $2m earned per year for last 2 yearsMight note that even though PSE is on the West Coast, they have the same trading hours are the rest of them.
32Ticker 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.show more examples or have them do a worksheet at this point(worksheet to determine small, mid or large cap and exchange)T, INTC, RMBS, IBM, TXN, BEAS,O T = AT&T, INTC = Intel, TXN = Texas instruments, IBM = IBM, DAL = delta airlines, BA = Boeing, LUV = southwest airlines, AMR = American airlines, RMBS = Rambus.