Economics Unit 3- Business Organization – Flashcards
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What is a business organization?
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a commercial or industrial enterprise and the people who constitute it" an individual or group of people that collaborate to achieve certain commercial goals
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Sole Proprietorship
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-most common form of business organization -local to the area -A business owned and managed by a single individual -Owner earns all profits and is repsosible for all debts -Over 70% of businesses in the US are sole proprietorships
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Advantages of sole proprietorship
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Ease of start-up Relatively Few Regulations Sole receiver of profit Full control Easy to discontinue Not subject to special taxes
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Disadvantages of sole proprietorship
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Unlimited personal liability Liability Limited access to resources Lack of permanence
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Partnership
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A business organization owned by two more persons who agree on a specific division of responsibilities and profits
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advantages of partnership
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easy to start up inexpensive Subject to little government regulation Shared decision-making and specialization Larger pool of capital not subject to special taxes
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articles of partnership
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legal documents that spells out each partners rights and responsibilities and how profits and losses will be shared.
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General Partnership
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Most common type Partners share equally in both responsibility and liability
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Limited Partnership
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only one partner has unlimited personal liability for the firm's actions. the other only contributes money and does not actively manage the company. there must be 1 general partner and any number of limited partners.
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Limited liability partnership (LLP)
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All partners are limited partners. Function like a general partnership, but all partners are limited from personal liability in certain situations.
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Disadvantages of partnership
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unlimited liability (unless LLP) leaves potential for conflict
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Corporations
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A legal entity owned by individual stockholders, each of whom faces limited liability for the firm's debts Stockholders own stock, a certificate of ownership in a corporation A corporation has a legal identity separate from that of its owners
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Closely Held Corporations
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Issue stock to only a few people, often family members Known as privately held corporations
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Publicly Held Corporations
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Many stockholders who can buy or sell stock on the open market Stocks are bought and sold at financial markets known as stock exchanges
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Corporate Structure
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Stockholders ? board of directors ? chief executive officer (CEO)
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Advantages of corporations
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Limited Liability for owners Transferable Ownership Ability to attract capital (can sell share or bonds) Long life
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Disadvantages of corporations
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Expense and difficulty to start up Double taxation Potential loss of control by the founders More legal requirements and regulations
