1. Chapter 8-Business Organizations Elements of Business Operation include: A. expenses-include inventory and other items you will need to do your job. B. advertising C. record keeping-this allows you to keep a record of your receipts and expenses. D. risk-every business involves taking a risk. You must balance the risks against the advantages. There are 3 major forms of business organizations: Sole proprietorships, partnerships and corporations.

2. Sole proprietorships-A business owned and run by one person. It is the most common form of business organization in the United States. Even though they are the most numerous and the least profitable, they are the smallest in size. 73% of businesses-5% of business revenues. The sole proprietorship is the easiest form of business to start, because there are few requirements other than licenses and fees. Advantages: of a sole proprietorship include: A. the ease of start-up B. the ease of management, there are no partners to consult, so decision making is quick and easy C. the owner of the business does not have to share the profits of the business

3. D. the business does not have to pay separate income taxes, because the business is not recognized as a separate entity. The owner must pay taxes on the profits, but the business does not pay taxes. If a person owns two businesses, neither business pays taxes, the owner simply lumps the income from the two businesses together at the end of the year.

4. E. psychological satisfaction-there is a certain amount of satisfaction achieved from owning your own business and being your own boss. F. the ease of getting out of business-all the proprietor has to do is pay the final bills, and stop offering goods and services. Disadvantages: A. the owner of the sole proprietorship has unlimited liability for any and all debts and losses of the business. If the business fails, the owners personal possessions can be taken to satisfy any outstanding debts.

5. B. the owner may have a difficult time raising financial capital. Sole proprietors may have limited financial resources to put in the business and this limits the potential of the business. C. size and efficiency-because of limited capital, the proprietor may not be able to hire enough personnel or stock enough inventory to operate the business efficiently. D. the proprietor may have limited business knowledge and experience E. difficulty attracting qualified employees-Due to the size of the business, more qualified applicants may work some place where they can get more fringe benefits and higher pay. F. limited life-If the owner of the business dies, quits, or sells the business, the business ends.

6. Partnerships A partnership is a business jointly owned by 2 or more persons. Partnerships represent the least number of businesses in the United States today, 7.1%, with the next to the smallest proportion of sales and net income 6.2%. The most common form of partnership is the general partnership. In a general partnership, all partners are responsible for the management and financial obligations of the business.

7. A limited partnership has at least one partner that is not active in the daily operations of the business. One of the partners may contribute funding only. Legal paperwork must be signed by the partners, called articles of partnership. These specify the arrangements of the partnership. Advantages: A. Like a sole proprietorship, a partnership is easily established. B. Ease of management-generally each partner brings specific talents to the business.

8. C. Partnerships do not have to pay special taxes. The partners draw profits from the firm, then pay individual taxes. D. Partnerships can usually attract financial capital more easily than proprietorships. E. Partnerships may include 100 partners, which can make for a more efficient business. F. Partnerships can attract highly skilled workers because most partnerships offer specialized services-for example, law offices, physicians, etc.

9. Disadvantages: A. The main disadvantage is that each partner is responsible for the acts of all other partners-much like a sole proprietorship.. In the case of a limited partnership, the limited partners have limited liability, and can only be held responsible for the amount of their original investment. B. If a partner dies, the partnership must be dissolved and reorganized. C. The potential for disagreement among the partners.

10. Section 3 CORPORATIONS Corporations constitute 1/5 of the firms in the United States, and about 90% of all sales. A corporation is a form of business organization recognized by law as a separate legal entity having all the rights of an individual. A corporation can buy and sell property, enter into legal contracts, sue and be sued. People who wish to incorporate a business must file the necessary paperwork with the national government, or the state government in which the state will have its headquarters.

11. If it is approved, a charter, or license will be issued. The charter states the number of shares of stock in the company that will be issued for sale. The purchasers of the stocks are stockholders or shareholders. The money received from the sale of the stock is used to set up the corporation. In the event the corporation makes money, the stockholders will receive dividends on the stocks they purchased.

12. Two types of stock are sold: common and preferred. Common stock represents basic ownership of a corporation. The owner usually receives one vote, to elect a board of directors, for each share of stock. The board of directors is responsible for hiring qualified officers to run the business. Preferred stock represents nonvoting ownership shares of the corporation. Preferred stockholders receive dividends before common stockholders. If the corporation goes out of business, the preferred stockholders receive their investment back on their stocks before the common stockholders.

13. Advantages: A. The main advantage of a corporation is the ease of raising financial capital. If the corporation needs more money, the corporation can sell more stock. A corporation can also raise money by selling bonds.. B. Corporations can hire professionals to run the business. Stockholders can own a part of the business without having to know anything about the business. C. The corporation provides limited liability for its owners. The corporation is responsible for the debts, not the stockholders. The corporation can be sued without suing the stockholders. D. A corporation has unlimited life

14. Disadvantages: A. Obtaining a charter is both difficult and costly. B. Ownership and management are separated so shareholders have little say in running the business C. Corporate income is taxed twice-dividends are taxed once as a corporate profit and again as personal income. D. Corporations are subject to more government regulation. It must be registered with the federal Securities and Exchange Commission(SEC) if the corporation will sell stock to the public.

15. A horizontal merger is the joining of firms that make the same product. A vertical merger is the joining of firms involved in different stages of manufacturing or marketing. A conglomerate is composed of four or more businesses, each making unrelated products, none of which is responsible for a majority of its sales. Diversification is one of the main reasons for conglomerate mergers A multinational is a corporation with manufacturing and service operations in several countries, which are subjected to each nation’s business regulations.