Consider: What American business do you think tops Fortune 500’s list of US companies in 2014? The Last Word: Ch 7 Review/Unit 3 Test next Tuesday

Chapter 8

KEY CONCEPT  Most producers in a market economy are business organizations, commercial or industrial enterprises and the people who work in them.  The purpose of most business organizations is to earn a profit; not all, though…

SOLE PROPRIETORSHIP  A business owned and managed by a single person.  The most common type of business org. in the U.S.  Account for more than 70% of businesses, but generate less than 5% of sales.

 Co-owned by two or more people who agree on how responsibilities, profits, and losses will be divided.  Most common in law firms, accounting firms, doctors’ offices, and investment companies. PARTNERSHIPS

Types of PARTNERSHIPS  General partnership  Most common type  Partners share responsibility for managing the business and each one is liable for debts and losses.  Usually partners share liabilities and profits equally.

LIMITED PARTNERSHIP At least one partner is not involved in the day-to-day operation of the business and is only liable for the funds her or she invested.  Must have at least one general partner to run business, but can have many limited partners. ; This allows the general partner(s) to raise funds.

LIMITED LIABILITY PARTNERSHIPS  All partners are limited partners and not responsible for the debts of other partners.  Not all business can become LLPs.  Those that can include medical partnerships, law firms, and accounting firms.  Laws vary from state to state.

CORPORATIONS  Owned by individuals, called shareholders or stockholders.  Shareholders own rights to profits, but face limited liability for the company’s debts and losses.  Individuals acquire ownership rights through the purchase of stock, shares of ownership in the corporation.

Stock ownership  For example:  A large company sells a million shares of stock.  If you bought 10,000 shares, you would own 1% of the company.  If the company runs in trouble, you aren’t responsible for any of its debts.

Corporations  For example:  Your only risk is that the value of the stock might decline.  If the company does well and earns a profit, you might receive a payment called a dividend.

Public and Private companies  A corp. that issues stock that can be freely bought and sold is called a public company.  A corp. that retains control over who can buy and sell stock is called a private company. Top private companies in the US

Initial Public Offering (IPO) - May 18, 2012

CORPORATIONS  A corp. that

Advantages and disadvantages of each structure

SOLE PROPRIETORSHIP  Advantages: Easy to open or close Few regulations Freedom and control Owner keeps profits

SOLE PROPRIETORSHIP  Disadvantages:  Limited funds  Limited life  Unlimited liability – personally responsible for any debts

PARTNERSHIPS  Advantages Easy to open or close Few regulations Access to resources Joint decision making Specialization

PARTNERSHIPS  Disadvantages  Unlimited liability  Potential for conflict  Limited life

CORPORATIONS  Advantages Greater access to funds Business run by professionals Limited liability Unlimited life

CORPORATIONS  Disadvantages  Difficult to start up  More regulations  Double taxation  Owners have less control