ECONOMICS CHAPTER 3

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ECONOMICS CHAPTER 3

• BUSINESS ORGANIZATIONS

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FORMS OF BUSINESS ORGANIZATION

• SOLE PROPRIETORSHIP
• DEFINITION
• HOW TO FORM ONE
• LICENSES
• GENERAL BUSINESS LICENSE
• (SKILL) LICENSE
• FEES
• ADVANTAGES
• EASY TO START
• EASE OF MANAGEMENT (QUICK DECISION MAKING)
• OWNER RECEIVES ALL THE PROFITS
• DOES NOT PAY BUSINESS TAXES
• BEING YOUR OWN BOSS
• EASY TO CLOSE DOWN
• DISADVANTAGES
• UNLIMITED LIABILITY
• DIFFICULT TO RAISE OPERATING CAPITAL
• LIMITED SIZE AND EFFICIENCY
• LIMITED ENTREPRENEURIAL SKILLSINVENTORY AND
  TRUSTED WORKERS

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BUSINESS ORGANIZATIONS CONTINUED

• PARTNERSHIP
• Definition
• Types of partnerships
• General partnership-
• Limited partnership
• Forming a partnership
• Articles of Partnership
• Attorney fees
• Licenses and fees
• Advantages
• Easy to start
• Ease of management
• Lack of special taxes
• Easier to attract start up capital than a sole
  proprietor
• Slightly larger in size
• Easier to attract talented employees
• Disadvantages
• Each partner is fully responsible for the actions
  of each other.
• (Limited partners limited liability)

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BUSINESS ORGANIZATIONS CONTINUED
Worldwide Web

• CORPORATIONS
• Definition
• Forming a Corporation
• File incorporation papers
• Charter
• shares (stock)
• Stockholders
• dividends
• Corporate structure
• Common stock-voting privileges for the Board of
  Directors.
• Preferred stock-nonvoting owners, first
  recipients of
• dividends.
• Voting by proxy
• Advantages
• Ease of raising capital
• Sell more stock
• Issue bonds
• Hire professional managers to run the company
• Owners have limited liability

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GOVERNMENT REGULATION OF BUSINESS

• 1880s -- government regulation of business.
  Populistsregulated railroads.
• ICC.
• Since the end of the Civil War there has been a
  conflict between large corporations and
  government regulation.anti-monopoly, or anti-
  trusts laws.
• Sherman Anti-Trust Act
• Great Depression caused the biggest wave of
  government involvement.
• Banking laws, working hours, minimum wages,
  workers compensation, pollution standards, clean
  and safe workplaces, union protections,
  utilities.
• BUSINESS DEVELOPMENT
• State governments today work very hard at getting
  new industry to locate in their state.
• Incentives building infrastructure, bond
  offers, deferred taxes, low taxes, state
  financing. Why?
• JOBS!!

BOEING
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BUSINESS GROWTH AND EXPANSION

• BUSINESS GROWTH
• There are two BASIC ways businesses grow
• 1. Growth through investment
• Income statement p. 69
• Net Income depreciation cash flow
• Those may be reinvested back into the company.
• 2. Growth through mergers
• Reasons for merging
• Quicker growth
• Efficiency (cut costs)
• Need to acquire new product lines
• Keep up with rival companies
• To lose its corporate identity (if the old name
  had a bad name)--Valujet
• Types of mergers
• Horizontal merger
• Vertical merger
• Conglomerates
• Diversification
• Multinationals

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Other Business Organizations

• LLCLimited Liability Company, sole
  proprietorship with limited liability.
• Non-Profit Organizations
• Definition
• Examples YMCA, United Way,
• Cooperatives
• Consumer Co-ops
• Co-op grocery stores in big cities/apartments
• Service Co-ops
• Credit Union
• Producer Co-ops
• Farm co-ops
• Labor, Professional and Business Organizations
• Labor Unions
• Collective Bargaining
• UAW
• Professional Associations
• NEA, AMA, American Bar Association
• Business Associations
• Chamber of Commerce, Better Business Bureau

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INVESTING ON THE STOCK MARKET

• 1. Financial investments on the stock market are
  called equities.
• 2. Prices of equities are determined by
• Number of shares on the market for sale.
• Profitability of the company.
• Expectations for the future
• 3. ACCURACY OF THE MARKET
• The Efficient Market Hypothesis
• Due to the of market analysts, prices of stock
  are rightthere are no bargains.
• Stock market therefore is not luck.
• Portfolio diversification, buy lots of different
  types of stock.
• Buy from internet account
• Use a stockbroker
• 4. Places where equities are sold
• New York Stock Exchange (NYSE)Wall Streetlists
  2,800 companies-each of these companies must meet
  profitability and size requirements
• American Stock Exchange (AMEX)Wall Street750
  companies
• Global Stock Exchanges (Tokyo, London)
• Over-the-Counter Markets (electronic stock
  marketplace)National Association of Securities
  Dealers Automated Quotation NASDAQ

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MEASURES OF STOCK PERFORMANCE AND HOW TO MAKE
MONEY OFF THE STOCK MARKET

• MEASURES OF STOCK PERFORMANCE
• Dow Jones Industrial Averagepublishes the
  average closing price of 30 stocks.
• Standard Poors 500uses price changes of 500
  representative stocks as an indicator of the
  overall market performance.
• Bull Marketis a strong market where stock prices
  have been going up over a certain period of time.
  1995-2000 Dow-Jones average went from
  4,000-12,000.
• Bear Marketis a period where the market is weak
  for a certain period of time. 1930s and
  2001-2003 (market dropped by 33), 2008-2009
• HOW TO MAKE MONEY OFF THE STOCK MARKET
• 1. Stock speculationbuy low and sell high.
• 2. Dividend valuebased on the profit yield of
  the company.
• 3. Short selling borrow stock when price is high
  and sell it, then buy it back when the price
  drops. The difference is your profit.