1. Economic Notes
Chapter 3

2. Types of Business Organization
Single Proprietorship – Business owned by one person, easiest to organize, most common type of business
Ex. Hair salons, auto shop, restaurants, etc
Partnership – 2 or more owners, least common type of business
Ex. Doctor, dentist, law offices
Corporation – Business owned by stock holders, most protected type of business, most difficult to organize
Ex. GM, Apple, Exxon, Disney, etc.

3. Business Terms: Liability – financial responsibility
Unlimited Liability – total financial responsibility up to and including private property and accounts
Limited Liability – financial responsibility is limited to your investment
Limited Life – business is limited to the life of the owner

4. Unlimited Life – business continues as long as it is making a profit
Stock – share of ownership in a corporation
Rent – payment for the use of someone’s property
Interest – payment for the use of someone’s money
Prime Rate – the best interest rate, reserved for the best customers

5. Bond – an I.O.U. , a promise to pay back the amount of the bond at a specific time with a specific rate of interest
Dividends – a share of the corporations profit paid to stockholders
Capital Gain – investment earnings, the amount of money you made in an investment
Ex. Purchase a house for $100,000 and sell it for $140,000 and you have $40,000 in capital gains

6. Charter – a government document that gives permission to create a corporation
Principal – the amount borrowed
Gross Income – total income earned
Net Income – earnings after taxes and expenses
Depreciation – the loss in value an item experiences over time

7. Merger – combining two or more businesses to form a single firm
Horizontal merger – combines firms from the same industry
Ex. The NFL and AFL The NHL and the WHA
Vertical Merger – combines firms that perform different steps in the production process
Ex. Farm industry, canning factory, trucking company, warehouse and retail store all join together

8. The NFL merged with the AFL

9. The NHL merged with the WHA

10. THIS ALL WORKED TO MAKE CARNEGIE STEEL AN INDUSTRIAL JUGGERNAUT!!!
Vertical Mergers
Owned Carnegie Steel
Owned Carnegie Rail
Owned Carnegie Mineral Co.
THIS ALL WORKED TO MAKE CARNEGIE STEEL AN INDUSTRIAL JUGGERNAUT!!!
Owned Carnegie Steamship Co.

11. Conglomerate – a firm that has at least four businesses, each making unrelated products
Ex. R.J. Reynolds owns a shipping company, Kentucky Fried Chicken, Del Monte and a Winery
Diversification – business interests in many different areas
Multinational – a corporation that has manufacturing or service operations in a number of different countries
Ex. General Motors, Union Carbide, Nabisco, Mitsubishi, Sony, etc.

12. Advantages to Single Proprietorships
* Easy to organize
* Flexible
* You are the Boss

13. Disadvantage to a Single Proprietorship
* Unlimited Liability
* Limited Life
* You have all of the responsibility

14. Advantages to a Partnership
* Share the work
* Share the Cost
* Specialization

15. Disadvantages to a partnership
Unlimited liability
Limited life
Disagreements
Less flexibility

16. Advantages to a Corporation
Limited liability
Unlimited life
Specialization
Ability to sell stock

17. Disadvantages to a Corporation
*Corporate taxes
Less flexibility
More difficult to organize