1. BUSINESS ORGANIZATIONS
ECONOMICS CHAPTER 3
BUSINESS ORGANIZATIONS

2. FORMS OF BUSINESS ORGANIZATION
SOLE PROPRIETORSHIP
DEFINITION:
HOW TO FORM ONE:
LICENSES
GENERAL BUSINESS LICENSE
(SKILL) LICENSE
FEES
ADVANTAGES
EASY TO START
EASE OF MANAGEMENT (QUICK DECISION MAKING)
OWNER RECEIVES ALL THE PROFITS
DOES NOT PAY BUSINESS TAXES
BEING YOUR OWN BOSS
EASY TO CLOSE DOWN
DISADVANTAGES
UNLIMITED LIABILITY
DIFFICULT TO RAISE OPERATING CAPITAL
LIMITED SIZE AND EFFICIENCY
LIMITED ENTREPRENEURIAL SKILLS—INVENTORY AND TRUSTED WORKERS
HARD TO ATTRACT QUALIFIED EMPLOYEES
LIMITED LIFE

3. BUSINESS ORGANIZATIONS CONTINUED
PARTNERSHIP
Definition:
Types of partnerships:
General partnership-
Limited partnership
Forming a partnership:
Articles of Partnership
Attorney fees
Licenses and fees
Advantages:
Easy to start
Ease of management
Lack of special taxes
Easier to attract start up capital than a sole proprietor
Slightly larger in size
Easier to attract talented employees
Disadvantages:
Each partner is fully responsible for the actions of each other.
(Limited partners = limited liability)
Limited life
Conflict between partners
Split the profits

4. BUSINESS ORGANIZATIONS CONTINUED
Worldwide Web
CORPORATIONS
Definition:
Forming a Corporation:
File incorporation papers
Charter
# shares (stock)
Stockholders
dividends
Corporate structure:
Common stock-voting privileges for the Board of Directors.
Preferred stock-nonvoting owners, first recipients of
dividends.
Voting by proxy
Advantages:
Ease of raising capital
Sell more stock
Issue bonds
Hire professional managers to run the company
Owners have limited liability
Unlimited life of the company
Due to their size they can attract and hire the best because
they can offer the highest salaries and best benefits packages..
Disadvantages:
Expensive to get a charter
Owners have little say in the running of the company.
Owners are double taxed
Corporations are subject to much government regulation

5. GOVERNMENT REGULATION OF BUSINESS
1880s -- government regulation of business. “Populists”—regulated railroads.
ICC.
Since the end of the Civil War there has been a conflict between large corporations and government regulation.—anti-monopoly, or anti- “trusts” laws.
Sherman Anti-Trust Act
Great Depression caused the biggest wave of government involvement.
Banking laws, working hours, minimum wages, worker’s compensation, pollution standards, clean and safe workplaces, union protections, utilities.
BUSINESS DEVELOPMENT
State governments today work very hard at getting new industry to locate in their state.
Incentives: building infrastructure, bond offers, deferred taxes, low taxes, state financing. Why?
JOBS!!
BOEING

6. BUSINESS GROWTH AND EXPANSION
There are two BASIC ways businesses grow:
1. Growth through investment:
Income statement p. 69
Net Income + depreciation = cash flow
Those $ may be reinvested back into the company.
2. Growth through mergers:
Reasons for merging
Quicker growth
Efficiency (cut costs)
Need to acquire new product lines
Keep up with rival companies
To lose its corporate identity (if the old name had a bad name)--Valujet
Types of mergers
Horizontal merger
Vertical merger
Conglomerates
Diversification
Multinationals
International in scope

7. Other Business Organizations
LLC—Limited Liability Company, sole proprietorship with limited liability.
Non-Profit Organizations
Definition:
Examples: YMCA, United Way,
Cooperatives
Consumer Co-ops
Co-op grocery stores in big cities/apartments
Service Co-ops
Credit Union
Producer Co-ops
Farm co-ops
Labor, Professional and Business Organizations
Labor Unions
Collective Bargaining
UAW
Professional Associations
NEA, AMA, American Bar Association
Business Associations
Chamber of Commerce, Better Business Bureau
Government
Direct Role of Government
TVA, FDIC, US Postal Service
Indirect Role of Government
Oversee Public Utilities, Social Security, VA

8. INVESTING ON THE STOCK MARKET
1. Financial investments on the stock market are called equities.
2. Prices of equities are determined by:
Number of shares on the market for sale.
Profitability of the company.
Expectations for the future
3. ACCURACY OF THE MARKET
The Efficient Market Hypothesis
Due to the # of market analysts, prices of stock are right…there are no bargains.
Stock market therefore is not luck.
Portfolio diversification, buy lots of different types of stock.
Buy from internet account
Use a stockbroker
4. Places where equities are sold:
New York Stock Exchange (NYSE)—Wall Street—lists 2,800 companies-each of these companies must meet profitability and size requirements
American Stock Exchange (AMEX)—Wall Street—750 companies
Global Stock Exchanges (Tokyo, London)
Over-the-Counter Markets (electronic stock marketplace)—National Association of Securities Dealers Automated Quotation NASDAQ

9. MEASURES OF STOCK PERFORMANCE HOW TO MAKE MONEY OFF THE STOCK MARKET
MEASURES OF STOCK PERFORMANCE AND HOW TO MAKE MONEY OFF THE STOCK MARKET
MEASURES OF STOCK PERFORMANCE
Dow –Jones Industrial Average—publishes the average closing price of 30 stocks.
Standard & Poor’s 500—uses price changes of 500 representative stocks as an indicator of the overall market performance.
Bull Market—is a strong market where stock prices have been going up over a certain period of time Dow-Jones average went from 4,000-12,000.
Bear Market—is a period where the market is weak for a certain period of time s and (market dropped by 33%),
HOW TO MAKE MONEY OFF THE STOCK MARKET
1. Stock speculation—buy low and sell high.
2. Dividend value—based on the profit yield of the company.
3. Short selling– borrow stock when price is high and sell it, then buy it back when the price drops. The difference is your profit.