AMERICAN BUSINESS 3 MAJOR TYPES –SOLE PROPRIETORSHIP –PARTNERSHIP –CORPORATION

SOLE PROPRIETORSHIPS A business owned and operated by one person Advantages –Relatively easy to begin –Claims all of the profits –Your own boss

SOLE PROPRIETORSHIPS DISADVANTAGES –Unlimited liability – responsible for all of the debts of the company –Responsible for all aspects of the business –Difficult to raise revenue

PARTNERSHIPS 2 or more individuals agree to own and operate a business together ADVANTAGES –They pool their resources and their business skills –Relatively easy to create

PARTNERSHIPS –Share business responsibilities –Can have some sort of specialization –Share risks DISADVANTAGES –Relatively difficult to raise revenue –Must share profits

PARTNERSHIPS –Partnership has unlimited liability –Decision making can be difficult

CORPORATIONS A legal creation that can –Acquire resources –Own assets –Produce and sell products –Incur debts (sell bonds) –Sue and be sued

CORPORATIONS ***A CORPORATION IS SEPARATE FROM THE STOCKHOLDERS THAT OWN IT

CORPORATIONS ADVANTAGES –Effective at raising revenue Selling stocks Issuing bonds

STOCKS Part ownership in a corporation Stock owners vote for the corporate officers (those who run the corporation) Vote is in proportion to percentage of stocks owned Stock owners get a share of the corporate profits (dividends)

BONDS If you purchase a corporate bond, you are lending money to the corporation The corporation promises to pay the value of that bond plus interest Stocks and bonds are also known as SECURITIES

CORPORATIONS LIMITED LIABILITY – Stockholders only risk what they have invested –The corporation can be sued but the stockholders cannot Can mass produce product and specialize human resources Tend to have a longer life than partnerships and proprietorships

CORPORATIONS DISADVANTAGES –Some red tape and expense to get a corporate charter –Double taxation Corporate profits are taxed Dividend income is taxed

CORPORATIONS Separation of ownership and management –Can lead to conflicting views on the running of the corporation

Legal Forms of Business Sole Proprietorship Partnership Corporation Domestic Output by Business Type Percentage of FirmsPercentage of Sales Sole Proprietorships Partnerships Corporations Sole Proprietorships Partnerships Corporations 72% 8% 20% 5% 11% 84% Source: U. S. Census Bureau

Business Terms PLANT – A factory, mine, store, or warehouse; a single physical establishment FIRM – a business organization that owns and operates plants INDUSTRY – a group of firms that produce the same, or similar, products

FORTUNE 500 Annual listing of the top corporations in America in terms of sales What companies do you think were on the 2008 list?

America’s Top Corporations Walmart - $379 Billion in sales; $12.7 billion in profits 2. Exxon Mobil - $373 Billion in sales; $40.6 Billion in profits 3. Chevron - $211 Billion in sales; $18.7 Billion in profits 4. General Motors - $182 Billion in sales; LOST $38.7 Billion

America’s Top Corporations 2008 Rest of the top ConocoPhillips 6. General Electric 7. Ford Motor 8. Citigroup 9. Bank of America 10. AT&T

America’s Top Corporations 2008 Other notables 14. Hewlett-Packard 22. Home Depot 26. Kroger 29. Costco 31. Target 34. Dell 44. Microsoft 59. Pepsi 66. Best Buy 67. Walt Disney 83. Coca-Cola 91. Macy’s

REALLY BIG BUSINESS Sometimes corporations merge together with other corporations These mergers can create more efficient firms that produce goods at lower prices The mergers can also create monopolies!

TYPES OF CORPORATE MERGERS Horizontal Merger –2 or more firms competing in the same market –Example – McDonald’s purchases Wendy’s

TYPES OF CORPORATE MERGERS Vertical Merger –2 or more firms involved in the production of the same product –Example – McDonald’s buys the trucking company that delivers its meat and buns

TYPES OF CORPORATE MERGERS Conglomerates –When firms buy other firms that make unrelated products –More than 3 businesses merged –No one business makes a majority of the firm’s profits

TYPES OF CORPORATE MERGERS Which of these types of mergers (horizontal, vertical, conglomerate) do you think government regulators have their closest eye on? Why?

THE MULTINATIONAL Corporations that produce and sell their goods throughout the world Headquartered in one country with branches in many other countries

THE MULTINATIONAL They must follow the laws and pay taxes in whatever country they are operating in 30 years ago, only the U.S. and England had the largest multinationals Now, the largest multinationals are multinational! Clever, eh?

OTHER TYPES OF BUSINESS ORGANIZATIONS Franchise –An entrepreneur pays a fee to a “parent company” for the right to sell that company’s product –Usually associated with fast food restaurants but is more broad than that

FRANCHISE ADVANTAGES Name recognition Standardized quality Parent company trains and supports the franchise employees National advertising Financial assistance Buying from large parent company can mean lower prices

FRANCHISE DISADVANTAGES Must pay a franchise fee and share profits with the parent company Must strictly follow the parent company guidelines for running the business

OTHER TYPES OF BUSINESS ORGANIZATIONS Non-Profit Organizations – an organization that exists for the purpose of benefiting society, NOT for making a profit Examples – YMCA, American Red Cross, Bill and Melinda Gates Foundation, The Better Business Bureau

OTHER TYPES OF BUSINESS ORGANIZATIONS Almost all of them provide services instead of goods They are exempt from income taxes by government

LEVELS OF COMPETITION Some businesses compete in a market with large numbers of sellers Some businesses compete in a market with relatively few sellers Some businesses compete in a market with no competition

LEVELS OF COMPETITION Thus, the MARKET STRUCTURE for an American business depends on their unique competitive situation There are 4 basic levels of competition –Pure Competition –Monopolistic Competition –Oligopoly –Monopoly

PURE COMPETITION Sometimes called PERFECT COMPETITION CHARACTERISTICS –Very large number of independently acting sellers in the market –All the sellers produce the same, homogeneous product; Consumers make no difference between Product A, B, C, D, etc…

PURE COMPETITION Sellers make no attempt to differentiate their product from their competitors Because there are so many sellers, no one business can increase or decrease their output to affect the market price In other words, businesses do not control the price of their product

PURE COMPETITION It is very easy to enter and to leave this type of market In other words, no significant legal, financial or technological obstacles exist