Economics Chapter 8 – Business Organizations – Flashcards
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Business Organization
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an establishment formed to carry on commercial enterprise
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Sole Proprietorship
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a business owned and managed by a single individual
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Advantages of sole proprietorship
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- Simple to establish - least regulated form of business - sole receiver of profit - full control - easy to discontinue
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Minimum requirements to start sole proprietorship
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- Authorization - Site permit - Name
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Business License
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authorization to start a business issued by the local government
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Zoning Law
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law in a city or town that designates separate areas for residency and for business
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Disadvantages of sole proprietorship
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- Unlimited personal liability - Limited ability to expand - Few people can do everything - May have to turn down work - Business ends upon death/illness - Limited fringe benefits to employees
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Liability
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the legally bound obligation to pay debts
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Fringe Benefit
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payment other than wages or salaries
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Partnership
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a business organization owned by two or more persons who agree on a specific division of responsibilities and profits
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General Partnership
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partnership in which partners share equally in both responsibility and liability
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Limited Partnership
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partnership in which only one partner is required to be a general partner
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Limited Partner
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contribute money (investors).
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Limited Liability Partnership (LLP)
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partnership in which all partners are limited partners
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Advantages of a Partnership
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- Easy and inexpensive to establish - Little government regulation - Shared responsibility (each person can specialize) - Larger pool of capital - No special taxes
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Uniform Partnership Act (UPA)
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act ordering common ownership interests, profit and loss sharing, and shared management responsibilities in a partnership
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Articles of Partnership
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a partnership agreement that explains each partner's rights and responsibilities
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Assets
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money and other valuables belonging to an individual or business
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Disadvantages of a Partnership
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- Unlimited liability to each partner *except limited partners - Each partner is bound by the acts of the other partner - Potential for conflict
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Corporation
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a legal entity owned by individual stockholders. Have a separate identity from their owners
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Stock
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a certificate of ownership in a corporation
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Closely Held Corporation
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corporation that issues stock to only a few people, often family members
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Publicly Held Corporation
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corporation that sells stock on the open market
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Bond
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a formal contract to repay borrowed money with interest at fixed intervals
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Certificate of Incorporation
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license to form a corporation issued by state governement
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Advantages of a corporation
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- Limited liability (not responsible for corporate action) - Flexibility - Large potential for growth - Stockholders don't need special skills - Survivability
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Disadvantages of a corporation
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- Difficult to start-up - Corporate income taxes - Loss of control by owners - Lots of regulations
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Dividend
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the portion of corporate profits paid out of stockholders
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Horizontal Merger
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the combination of two or more firms competing in the same market with the same good of service
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Vertical Merger
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the combination of two or more firms involved in different stages of producing the same good of service
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Conglomerate
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business combination merging more than three businesses the make unrelated products
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Multinational Corporation
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large corporation that produces and sells its goods and services throughout the world
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Business Franchise
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a semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area
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Advantages of a franchise
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- train inexperienced owners - standardized product quality - pay for advertising - help with financial assistance - buy in bulk
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Disadvantages of a franchise
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- high franchise fee and royalties - strict operating rules, can only sell approved products - have to buy supplies from parent company
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Royalty
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share or earnings given as payment
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Cooperative
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a business organization owned and operated by a group of individuals for their mutual benefit
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Consumer Cooperative
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retail outlet owned and operated by consumers
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Service Cooperative
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cooperative that provides a service, rather than a good
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Producer Cooperative
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agricultural marketing cooperative that helps members sell their products
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Nonprofit Organization
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institution that functions much like a business, but does not operate for the purpose of generating profits
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Professional Organization
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nonprofit organization that works to improve the image, working conditions, and skill levels of people in particular occupations
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Business Association
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nonprofit organization that promotes collective business interests for a city, state, or for a group of similar businesses
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Trade Association
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nonprofit organization that promotes the interests of a particular industry
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Labor union
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Organized groups of workers whose goal is to improve working conditions
