Forms of Business Organization

Forms of Business Organization

Economics 1st, 2nd, and 5th Hrs. ​

​Business Organizations

Econ

Sole proprietorship, partnership, corporation, franchise

Corporation

• Must file for permission from the national or state government ​where the business will have the headquarters

  • If approved a...

• Charter: a government document ​that gives permission to create a corporation

  • is granted ​

• The charter also specifies the number of shares of stock in the firm

Econ

Business Organization

Corporation

• Stockholders own a stock in the corporation

• If the corporation is profitable, it may issue a dividend

  • dividend: a check that transfers a portion of the corporate earnings to each stockholder

• Types of stocks

  • common and preferred

• Common stock: most basi​ form of corporate ownership, generally with one vote per share for stockholders

  ​

Econ

Business Organization

Corporation

• Each share has one vote to elect a board of directors

• Directors set broad policies and goals for the corporation and can hire a professional management team to run the business

• Preffered stock: form of stock with no voting privileges; has a higher claim on corporate income and assets than does common stock

• Nonvoting ownership shares of the corporation

• cannot vote for the directors, receive their dividends before common stakeholders receive theirs

Econ

Business Organization

Advantages and Disadvantages of Corporations ​

Advantages

• ease of raising financial capital

• may borrow money from investors by using bonds

  • bond: ​formal contract to repay borrowed money and interest on the borrowed money at regular future interests

• amount borrowed is a...

  • principal: ​amount borrowed when getting a loan or issuing a bond

Econ

Business Organization

Advantages and Disadvantages of Corporations ​

Advantages (cont.)

• interest: the price paid for the use of the lender's money

• limited liability: requirement in wich a corporation, but not its owners, is responsible for all losses and debts of the business

• board of directors can hire professional managers to run the firm

  • stockholders don't have to have much knowledge to own a portion of the company

• ease of transferring ownership

• unlimited life

Econ

Business Organization