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Chapter 8 Economics: Types of Business Organizations

business organization
an enterprise that produces goods or services usually in order to make a profit
sole proprietorship
a business organization owned and controlled by one person
limited life
a situation where a business closes if the owner dies, retires or leaves for some other reason
unlimited liability
means that a business owner is responsible for all the business’ losses and debts
advantages of sole proprietorship
-easy to open or close
– few regulations
-freedom and control
-owner keeps profits
disadvantages of sole proprietorship
-limited finds
-limited life
-unlimited liability
Mary Kay Ash
-founder of Mary Kay Inc
-make up
partnership
business co owned by two or more people who agree on how responsibilities, profits and losses of that business are divided
general partnership
partners share management of the business and each one is liable for all business debts and losses
limited partnership
one in which at least one partner is not involved in the day-to-day running of business and is liable only for the funds he or she has invested
limited liability partnership
all partners are limited partners and not responsible for the debts and other liabilities of the other partners
advantages of partnerships
-easy to open and close
-few regulations
-access to resources
-joint decision making
-specialization
disadvantages of partnerships
-unlimited liability
-potential for conflict
-limited life
corporation
a business owned by stock holders who own the rights to the company’s profits but face limited liability for the company’s debts and losses
stock
a share of ownership in a corporation
dividend
a part of a corporation’s profit that is paid out to stockholders
public company
issues stock that can be publicly traded
private company
controls who can buy and sell its stock
bond
a contract issed by a corporation that promises to repay borrowed money, plus interest, on a fixed schedule
limited liability
a business owner’s liability for debts and losses of the business is limited
unlimited life
a corporation continued to exist even after an owner dies, leaves the business, or transfers his/her ownership
advantages of corporations
-access to resources
-professional managers
-limited liability
-unlimited life
disadvantages of corporations
-start-up cost and effort
-heavy regulation
-double taxation
-loss of control
horizontal merger
combining of two companies that produce the same product or similar products
vertical merger
the combining of companies involved in different steps of producing or marketing a product
conglomerate
a business composed of several companies, each one producing unrelated goods or services
multinational corporation
is a large corporation with branches in several different countries
franchise
a business that licenses the right to sell its products in a particular area
franchisee
an almost independent business
advantages franchises
-independence
-big company trains people
-provide proven products
-pay for advertising
disadvantages franchises
-invest money without assurance of success
-share profits
-not have control over aspects of business
cooperative
a business operated for the shared benefit of the owners, who are also its customers
nonprofit organization
a business that aims to benefit society not to make a profit
consumer co-ops
require membership payment, keep prices low by purchasing goods in large volumes at discount price
service co-ops
business organizations such as credit unions that offer their members a service, buy insurance for employees
producer co-op
agricultural products, ensure cheaper/more efficient processing or better marketing of their porducts

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