CHAPTER 7

Business Organizations
SECTION 1: Sole Proprietorships SECTION 2: Partnerships SECTION 3: Corporations SECTION 4: Other Forms of Organizations

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SECTION 1

Sole Proprietorships

Objectives:
 What are the advantages of establishing a sole proprietorship?  What are the disadvantages of establishing a sole proprietorship?

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SECTION 1

Sole Proprietorships

Advantages to a sole proprietorship:
 easy to start up  full control of the business by the owner  exclusive rights to profits by the owner

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SECTION 1

Sole Proprietorships

Disadvantages to a sole proprietorship:
 unlimited liability by the owner  sole responsibility of the owner to operate the business  limited growth potential for the business  lack of longevity of the firm

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SECTION 2

Partnerships

Objectives:
 How do general partnerships and limited partnerships differ?  What are the advantages of organizing a partnership?  What are the disadvantages of organizing a partnership?
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SECTION 2

Partnerships

Differences between general partnerships and limited partnerships:
 General partnerships:
 Partners have equal decision-making authority.  Each partner has unlimited liability.

 Limited partnerships:
 Partners join as investors.  Partners have in inactive role in decision making.  Partners have limited liability.
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SECTION 2

Partnerships

Advantages of a partnership:
 easy to form  allow specialization  lets partners share decision making  shares business losses between partners

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SECTION 2

Partnerships

Disadvantages of a partnership:
 unlimited liability by partners  potential for conflict among partners  lack of business longevity

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SECTION 3

Corporations

Objectives:
 How is a corporation formed, and what are the characteristics of a corporation?  How is a corporation organized?  How do stocks and bonds differ?  What are the advantages and disadvantages of organizing a corporation?
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SECTION 3

Corporations

To form a corporation:
 Submit an application for the articles of incorporation and obtain a corporate charter.

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SECTION 3

Corporations

Information required by the articles of incorporation:
 the name and purpose of the proposed corporation  the address of the corporate headquarters  the method of fundraising to be used by the corporation  the amount of money the corporation expects to raise  the names and addresses of the major corporate officers  the intended life of the corporation
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SECTION 3

Corporations

Characteristics of a corporation:
 legally distinct from its owners  treated as an individual—can own property, hire workers, pay taxes, sue and be sued, and make and sell products

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SECTION 3

Corporations

Corporate structure:
 sometimes owned by shareholders  headed by a board of directors to make decisions  run by corporate officers—CEO, president, vice presidents, etc.—who carry out decisions made by the board  made up of department heads and other employees to perform day-to-day tasks
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SECTION 3

Corporations

Differences between stocks and bonds:
 Stocks:
 represent ownership of the firms  issued as shares

 Bonds:
 used to raise money  issued as a certificate in exchange for money

borrowed from an investor
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SECTION 3

Corporations

Advantages of organizing a corporation:
 limited liability  separation of ownership from management  ease of raising capital  longevity

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SECTION 3

Corporations

Disadvantages of organizing a corporation:
 costly and difficult to obtain a corporate charter  number of government regulations to follow  slow decision-making process

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SECTION 4 Other Forms of Organizations

Objectives:
 How do vertical combinations differ from horizontal and conglomerate combinations?  Why might a business owner decide to open a franchise?  What is the customer’s role in a cooperative?  How does a nonprofit organization differ from other types of business organizations?

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SECTION 4 Other Forms of Organizations Difference between vertical combinations and horizontal and conglomerate combinations:  Vertical combinations—two or more companies involved in different production phases of the same good or service  Horizontal combinations—two or more companies produce the same good or service  Conglomerate combinations—two or more companies produce unrelated products
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SECTION 4 Other Forms of Organizations

Benefits of opening a franchise to a business owner:
 A business owner can reduce the overall costs associated with starting a business because:
 employee training is often provided by parent

company  advertising is sometimes paid for by parent company  it can use the parent company’s name
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SECTION 4 Other Forms of Organizations

The customer’s role in a cooperative:
 owns a share in the business  shares the expense of running the business

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SECTION 4 Other Forms of Organizations

Differences between a nonprofit organization and other types of business organizations:
 not focused on financial gain  income not taxed by the government

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CHAPTER 7

Wrap-Up
1. Why is a sole proprietorship the easiest type of business to establish? 2. How does forming a partnership solve many of the problems that are associated with sole proprietorships? 3. Compare stocks and corporate bonds. How do corporations raise money through stocks and bonds? 4. Legally, how is a corporation treated as an individual?
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CHAPTER 7

Wrap-Up
5. Explain how vertical combinations differ from horizontal combinations. Describe how Andrew Carnegie created a vertical combination. 6. How do nonprofit organizations differ from other forms of business organizations?

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