1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil.

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Presentation transcript:

1 © ©1999 South-Western College Publishing PowerPoint Slides prepared by Ken Long Principles of Economics 2nd edition by Fred M Gottheil

2 Chapter 7 Business Ownership and Organization 2/29/2016 © ©1999 South-Western College Publishing

3 This chapter discusses principles associated with StockholdersUnlimited & Limited LiabilityCorporationsPartnershipsSole Proprietorships © ©1999 South-Western College Publishing Stocks & Bonds International & Multinational Corporations

4 What is the advantage of owning your own business? You can duplicate yourself through other people © ©1999 South-Western College Publishing

5 What is the simplest business form? Sole Proprietorship © ©1999 South-Western College Publishing

6 What is a Sole Proprietorship? A firm owned by one person who alone bears the responsibility and unlimited liability of the firm © ©1999 South-Western College Publishing

7 How do I establish a Sole Proprietorship? Be able to show that you are attempting to make a profit Give your business a name File Schedule C with taxes © ©1999 South-Western College Publishing

8 What are the advantages of a Sole Proprietorship? Simplicity Can work it part time Total control over decisions Work with family members © ©1999 South-Western College Publishing

9 What are the disadvantages of a Sole Proprietorship? The proprietor & the firm are legally inseparable Proprietor has unlimited liability © ©1999 South-Western College Publishing

10 What is Unlimited Liability? The owners personal wealth is subject to appropriation to pay off the firm’s debt © ©1999 South-Western College Publishing

11 What is a Partnership? A firm owned by two or more persons who each bear the responsibilities and unlimited liabilities © ©1999 South-Western College Publishing

12 What are the advantages to a Partnership? Shared responsibility Shared financial support Specialization © ©1999 South-Western College Publishing

13 What are the disadvantages of a Partnership? Possible erosion of trust All partners 100% liable Partners legally inseparable from the business © ©1999 South-Western College Publishing

14 Want to go into your own business? © ©1999 South-Western College Publishing

15 What is a Corporation? A firm whose legal identity is separate from the people who own shares of stock © ©1999 South-Western College Publishing

16 What is a major advantage of a Corporation? It is a separate legal being from its owners © ©1999 South-Western College Publishing

17 What is a Stock? Ownership in a corporation represented by shares that are claims on the firm’s assets and earnings © ©1999 South-Western College Publishing

18 Who is a Stockholder? A person owning at least one share of stock in a corporation © ©1999 South-Western College Publishing

19 What is an advantage of selling stock? The money never need be paid back © ©1999 South-Western College Publishing

20 What is the disadvantage of selling stock? The original owners can lose control over the corporation if too much stock is sold © ©1999 South-Western College Publishing

21 What is a Dividend? That part of a corporation’s net income that is paid out to its stockholders © ©1999 South-Western College Publishing

22 What is Common Stock? Stockholders can vote according to their share of outstanding stock © ©1999 South-Western College Publishing

23 How does Preferred Stock differ from Common Stock? 1. It does not carry voting privileges 2. Dividend yield is fixed 3. First claim on dividends © ©1999 South-Western College Publishing

24 Find out more about investing! © ©1999 South-Western College Publishing

25 What is a Corporate Bond? A corporate IOU specifying loan duration and the interest rate © ©1999 South-Western College Publishing

26 What is the advantage of selling bonds? Because no ownership comes with the bond the corporation runs no risk of losing control © ©1999 South-Western College Publishing

27 What is the disadvantage of selling bonds? The money borrowed has to be paid back © ©1999 South-Western College Publishing

28 What is a downside to a Corporation? Double taxation - both the corporation and stockholders pay taxes on the same profitable dollar © ©1999 South-Western College Publishing

29 What is a Hostile Takeover? When sufficient stock is bought up by a few stockholders who then take control over the company © ©1999 South-Western College Publishing

30 How can a Hostile Takeover be avoided? Buy own stock Make corporation less attractive to takeovers Friendly takeover © ©1999 South-Western College Publishing

31 Who owned stock in 1992? 51.3 million Americans 26.2% of adult population 70% have some college 55.6% earned over $50,000 © ©1999 South-Western College Publishing

32 Who else owns stock? People own stock through pension plans, life insurance, and other © ©1999 South-Western College Publishing

33 What is a Multinational Corporation? Production facilities are located in two or more countries © ©1999 South-Western College Publishing

34 What is a Sole Proprietorship? What is a Partnership? What is a Corporation? What is a Stock? What is a Dividend? What is a Corporate Bond? What is a Hostile Takeover?

35 ENDEND © ©1999 South-Western College Publishing