1. Chapter 3:

2. Section 1:

3. 3 Types  Sole-Proprietorships  Partnerships  Corporations

4. Sole Proprietorship  Definition: a business owned and run by one person  Easy to form; not a lot of requirements

5. Sole Proprietorship  Advantages  Easy to start up/easy to get out  Relatively easy to manage; no consulting  No sharing of profits  No separate business income tax; just personal income tax  Personal psychological satisfaction  Disadvantages  Owner has unlimited liability or fully responsible  Difficult to raise financial capital  Could be difficult to operate efficiently  Owner sometimes has limited managerial experience  Difficult to attract qualified employees  Limited life

6. Partnerships  Definition: jointly owned by two or more people  Two Types: 1) general: all partners are responsible for management and finances 2) limited: at least one person is not active in the daily operations

7. Partnerships  Advantages  Easy to start  Easy to manage  Lack of specific taxes  Easier to attract financial capital  A little more efficient  Easier to attract top talent  Disadvantages  Partners are responsible for one another; limited liability does exist, however  Limited life  Potential for conflict b/t partners

8. Corporations  Definition: a form of business organization recognized by law as a separate legal entity having all the rights of an individual

9. Forming a Corporation  Very formal  Must file for permission with government  If approved, a charter is granted  Money from stock and shareholders is used to set up corporation  If profitable, the corp. can issue a dividend

10. Corporate Structure  Stockholders’ rights depends on the type of stock bought  Common Stock: basic ownership of a corp.. One vote for each share used to elect board of directors  Preferred Stock: nonvoting ownership shares; get their dividends first and their investment back first if corp fails

11. Corporation  Advantages  Easier to raise financial capital; can sell more stock or borrow through bonds  Directors can hire managers  Limited liability for owners  Unlimited ilfe: can exist with different owners  Easy to transfer ownership  Disadvantages  Difficulty and expense of getting charter  Owners have little say in how it’s ran  Double taxation  Subject to more government regulation

12. Section 2:

13.  Can grow in 2 ways: Reinvesting profits merger

14. Growth Through Investment  Use revenues to invest in factories, machinery and new technologies  Can use an income statement to show process Report that shows sales, expenses and profits

15. Estimating Cash Flows  1 st : figure out total sales (revenue)  2 nd : find net income: subtract expenses and taxes from total sales (loans, salaries, depreciation, capital) Depreciation is a non-cash charge b/c money doesn’t go anywhere else  3 rd: Find cash flow, the sum of net income and non-cash charges real measure of profits for the business b/c it represents the total amount of new funds

16. Reinvesting Cash Flows  Can be paid to owners  Can reinvest in company

17. Growth Through Mergers  Reasons for Merging: Grow faster Become more efficient (both in production and financially) Acquire or deliver a better product

18. Types of Mergers Horizontal merger: Occurs when two companies that make the same product come together (2 banks) Vertical Merger: occurs when firms involved in different steps of manufacturing or marketing join together (car company merging with a tire company)

19. Conglomerates  Has at least 4 businesses, each making unrelated products, none of which are responsible for the majority of sales -don’t put all eggs in 1 basket http://www.pg.com/en_U S/brands/all_brands.sht ml

20. Multinational  Has manufacturing or service operations in a number of countries Has to obey all laws, pay taxes Can be helpful in creating jobs and generating tax revenue Can hurt by paying low wages, exporting resources or blocking local business development

21. Are They Always What They Seem?  http://www.youtube.c om/watch?v=M5uY CWVfuPQ http://www.youtube.c om/watch?v=M5uY CWVfuPQ https://www.youtube.com/watch?v=ysVSe8 ottJU

22. Section 3

23.  Non-profit: promotes the collective interests of members rather than seeking financial gain for owners

24. Community and Civic Organizations  Types of nonprofit (schools, churches welfare groups)  Similar to profit seeking, but do not issue stocks, pay dividends or income taxes  Use profit to further work

25. Cooperatives  Also called co-op: voluntary association of people formed to carry on some type of econ activity that will benefit members. (type of non-profit)  3 types: Consumer (buys things in bulk to try and offer lower prices to members) Service (offers services to members) Ex. Credit Union Producer (helps members promote or sell)

26. Labor, Professional and Business Organizations  Labor Unions: organization of workers formed to represent members interests in employment matters Participate in collective bargaining: negotiation with management over issues Can also pressure government

27. Are Union Needed?  http://www.youtube.com/watch?v=afgjm saTf8A http://www.youtube.com/watch?v=afgjm saTf8A  http://www.youtube.com/watch?v=YIwcL cH5wjg http://www.youtube.com/watch?v=YIwcL cH5wjg

28.  Professional Associations: Work to improve working conditions, skill levels and public perception (Ex. AMA)  Business Associations: promote interests of businesses Ex. Chamber of Commerce Industry or Trade Associations: represent specific kinds; interested in shaping gov’t policy that affects them Some protect consumer; Better Business Bureau

29. Government (non profit)  Direct Role: Supplies good or service that competes with private business (Ex. TVA, FDIC and U.S. Postal Service) Organized as government owned and operate similar to private bus. Profits go back into business and losses covered by Congress Local examples: police, education, etc.  Indirect Role Acts as umpire to make sure market economy operates smoothly Gives people power in the market Ex. Social Security, financial aid for college Ex. Regulates public utilities (water/electric) ○ Not a lot of competition