Chapter 11 business firm

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THE BUSINESS FIRM

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Transcript of Chapter 11 business firm

Page 1: Chapter 11 business firm

THEBUSINESS

FIRM

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INDIVIDUAL BUSINESS FIRMS

Is an organization under a single management established for the purpose of making profits for its owners by makingone or more items available for sale in the markets.

Basic feature of the capitalist(or mixed) economy.

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It may be engaged with:

1. production2. manufacturing

3. trading

4. provision of service

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1. production

Poultry farming

Vegetable and fruit farming

Fishpond business

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2. manufacturing

Cars

Toothbrushes

Radios

Sugar Computers

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Are those that are not engaged in production or manufacturing but withbuying and selling of goods that are produced or manufactured by other firms.

3. trading

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4. provision of service

Beauty parlors

Barber shops

Dental clinic

Universities

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CONGLOMERATE A Business firm that operates various plants that produce various types of goods and services.

FORMS OF BUSINESS ORGANIZATIONS

MAJOR FORMMINOR FORM

MODIFIED CORPORATE FORM

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MAJOR FORMS

1. Sole ProprietorshipAdvantages:1. It is easy to organize and the cost of Organization is minimal.2. The owner can keep his moves unknown to thecompetitors.3. The sole owner is also sole beneficiary of whateverprofits the business firms make.

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4. The sole owner has the exclusive power to controlthe business.5. Government requirements and restrictions on Sole proprietorship are less stringent when compared with the other forms.6. The net income of the sole proprietorship is taxed as personal income of the sole owner.7. The owner has the option of terminating his business anytime he wants.

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Disadvantages:1. The sole owner may lack the necessary ability And experience.2. There is difficulty in attracting and keeping Quality employees.3. It is difficult for the sole proprietorship to raise Bigger amounts of capital.4. The business firm’s life is limitted.5. The sole proprietor has unlimited liability.

1. Sole Proprietorship

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Forms of Business Organization

Major forms

Modified corporate

forms

Minor forms

Sole proprietorship

partnership

Corporation Business trust

Joint venture

Joint stock company

Mutual company

cooperative

Figure 49FORMS OF

BUSINESS ORGANIZATION

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2. PARTNERSHIPAdvantages:1. Partnerships are also easy to organize.2. The knowledge and skills of the partners may be pooled together to the advantage of the firm.3. The combined resources of the partners provide a bigger source of funding.4. The partnership is in a better position to attractand retain quality employees. 5. The income of the partners derived from the partnership is not taxed separately from the netincome of the partnership.

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Disadvantages:1. Unlimited liability is also disadvantage.2. The life of a partnership is limited.3. Conflict among partners is always possibility.4. Dissolving a partnership difficult.

TYPES OF PARTNERSHIP

GENERAL PARTNERSHIPLIMITED PARNERSHIP

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GENERAL PARTNERSHIP Is an association of two or more personswho are actively involved in the businessand all of which have unlimited liabilities.

LIMITED PARTNERSHIP Is an arrangement whereby the liability of one or more partners is limited to the amount of invested in the business.

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Business Aspects Sole Proprietorship Partnership Corporation

1. Liability to owners

Unlimited Limited/ unlimited

Limited

2. Ease of expansion

Not easy Not easy Easy

3. Life of firm Dependent on the owner

Dependent on the partner

Bot dependent on the owner

4. Decision making Can be made easily Tends to be slower

Tends to be slowest

5. Taxation of income

Once Once Twice

6. Ease of formulation

Easiest Easy Not easy

Table 34MAJOR FORMS OF BUSINESS ORGANIZATION:

POSITIVE AND NEGATIVE FEATURES

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3. CORPORATION Is a business firm owned by individuals

or others corporations.

Advantages:1. The liability of the owners is limited.2. Expansion is easily facilitated in a corporation.3. The ownership of a corporation is easily transferable.4. Corporations are more stable.5. The corporation has greater ability to hire specialized managers.

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Disadvantages:1. Corporations are more expensive andcomplicated to organize.2. Incomes derived from corporations are taxedtwice.3. Corporations are subject to more extensive government restrictions and reporting requirements.4. Employees lack personal identification andcommitment with the company.

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MINOR FORMS

1. Joint Stock CompanyThe capital is divided into a small units

permitting a number of investors to contribute varying amounts to the total profits being divided between stockholders in proportion to the numbers of shares they own.

TWO FORMS COMMON LAW STATUTORY LAW

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2. Joint Venture Is a “partnership” established for a specific

Project or for a limited time.

3. Business Trust Is a legal form of business organization wherea trustee is appointed to manage the business and its operations through a trust relationship.

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MODIFIED CORPORATE FORM

1. Cooperatives Is a “firm owned by a group of people who havea common objective and who collectively bear theRisks of the enterprise and share its profits.”

a. CREDIT UNIONb. PRODUCER’S COOPERATIVEc. MARKETING COOPERATIVEd. CONSUMER’S COOPERATIVEe. SERVICE COOPERATIVE

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2. Mutual Companies Is a financial service firm owned by its policyholders and depositors.

a. Mutual savings bankb. Mutual insurance bank

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FINANCING THE BUSINESS FIRMS

Type of organization Financing Source

Sole proprietorship - owner’s personal funds

- Borrowings from private persons or banks

Partnership - partner’s personal fund

- Borrowing from private person or banks

Corporation - Sale of share of stocks

- Borrowing through issuance of debt instruments like bonds and promissory notes

- Borrowings from bank

Table 35SOURCES OF FINANCINF FOR BUSINESS FIRMS

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CLASSES OF CORPORATE STOCKA. Common stocks

Is one that entitles its holder to voteat stockholders meetings and to participate in the election of directors.

B. Proffered stocks is one that conveys no voting rights

but gives a prior claim on dividends at afixed rate, regardless of the profit level.

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CLASSES OF DEBT INSTRUMENTS

A. Bonds are long-term debts of a firm set forth

In writing and made under seal.B. Promissory notes

is a document stating that someone promises to pay an amount of money on acertain date.

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THE END