Transcript Chapter 6 Business Decisions - Vista Unified School District

AGENDA: Fri 2/24 & Mon 2/27
Review Market Quiz
•QOD #16: I’m the boss of me!
•I’m lovin’ it!
•Business Firms (Computer lab next class)
•HW: pg 155 #1-10
•
QOD #16: I’m the boss of me!
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Explain why you would or would not want to run
your own business.
Regardless of your first response, assume you are
going to start your own business. Would you rather
buy an existing business or start from scratch?
Explain.
What products/services would your business sell
and why?
How would your guarantee profit for your business?
History of McDonald’s

Take notes on a T-chart.
 Left
side = History events
 Right side = Problems encountered
 Summary at the bottom discussing following questions:
1.
2.
3.
How would you rate Ray Kroc as an entrepreneur?
How would you rate Ray Kroc based on his character?
Would you want to be friends w/ Ray Kroc?
Why do business firms exist?
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People working together can produce more
than individuals working alone.
Shirking: putting forth less than the agreed
upon effort
 How does one person shirking impact
others?
Monitor: coordinates team production &
seeks to reduce shirking (Can hire/fire)
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Monitoring the monitor
 incentives – reward for doing your job
Residual Claimant: receives excess revenue
after costs (profits) as income
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profit sharing
bonus
Sole Proprietorship
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business owned by one individual
makes all the decisions
receives profits or losses
legally responsible for firms debts
Total # of Type
Proprietorship = 71.8%
Partnership = 9.2%
Corporation = 19.0 %
Total Revenue
Proprietorships = 4.2%
Partnerships = 12.8%
Corportation = 82.9%
Advantages of Sole Proprietorships
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Easy to form and dissolve
All decision making power with
the sole proprietor
Profit of the company only taxed
once
 personal
income tax
Disadvantages of Sole Proprietorships

Unlimited liability
 you
may lose your house because
your business fails

Limited ability to raise funds for
business expansion
 borrowing

funds getting harder
Limited Life – business usually ends
with death/retirement
 Employees
like to work for
companies that have permanency
Partnerships
 owned
by 2 or more co-owners or partners who share
profits and are legally responsible for any debts
incurred by the firm.

like sole proprietorship with more than one owner
Advantages of partnership
 Specialization:
As one person is
better at public relations, while
another person is better at
artwork, each can work at the
specialty they are best suited
 Taxation: Only personal income
taxes apply- Corporate taxes do
not apply to the owners in the
partnership.
Disadvantages of Partnerships
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Liability is unlimited
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General Partners: These partners are in
charge of managing the firm; the have
unlimited liability even if debt is
incurred by other partners
Limited Partners: The liability is
restricted to the how much he/she
invested in the firm; yet, they do not
participate in the management
 sometimes called silent partners
Decision Making problems
Some people might disagree on
certain situations
Corporations
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A legal entity that can operate business in its own name in the same way that
an individual does
It is owned by the stockholders who buy shares of stock (assets) in the
corporation.
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Stockholders- People who buy shares if stock in a corporation.
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stock represents a claim on the assets
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Assets- Anything of value to which the firm has legal claim.
The law treats a corporation like a person.
 Example: 2,000 people want to construct a corporation called ABC. Suppose
ABC is in debt of $5 million and it only has $2 million to pay the debt.
Legally, the remainder of the debt is the corporation that owes the money, not
the owners of the corporation, because the owners have limited liability.
Corporations
Advantages
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Limited liabilitystockholders cannot be sued
for the corporation’s failure
to pay its debts.
Continue to exist even if one
or more owners sell their
shares or die.
Usually able to raise large
sums of money by selling
stock.
Disadvantages
 Corporations
are subject to
double taxations

US federal corporate income
tax ( 39.3% rate) and
 dividends
are taxed through
personal income tax.
 Corporations
to set up.
are difficult
Country / Corporate income tax rates - 2008
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Japan – 39.5
United States – 39.3
France – 34.4
Belgium – 34.0
Canada – 33.5
Luxembourg – 30.4
Germany – 30.2
Australia – 30.0
New Zealand – 30.0
Spain – 30.0
Mexico – 28.0
Norway – 28.0
Sweden – 28.0
United Kingdom – 28.0
Italy – 27.5
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Korea – 27.5
Portugal – 26.5
Finland – 26.0
Netherlands – 25.5
Austria – 25.0
Denmark – 25.0
Greece – 25.0
Switzerland – 21.2
Czech Republic – 21.0
Hungary – 20.0
Turkey – 20.0
Poland – 19.0
Slovak Republic – 19.0
Iceland – 15.0
Ireland – 12.5
Typical Corporate Structure
Stockholders

Board of Directors

Secretary (COE)  President (CEO) Treasurer (CFO)

Vice-President
Vice-President
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All other Employees
Vice-President
Corporate structure pg 150
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Board of Directors (or
sometimes called board of
governors)decision making body that
decides on corporate policies
and goals
 elected by the stock/
shareholders of the company.
 The company is publicly owned.
 BOD do not work for the
company but make decisions on
behalf of the share holders or
the investors
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CEO- Chief executive officer
(Pres), CFO, COO (VP)

The famous Mark Zuckerberg,
CEO of Facebook.com is now
estimated to be worth between
$3 and $5 billion.
How to form a Corporation
Promoters advertise the prospectus
Articles of incorporations
Corporate charter
Organizational meeting
1.
2.
3.
4.
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Board of Directors – decision-making body decides
corporate policies and goals
Bylaws – internal rules of the corporation
Corporate officers
AGENDA: Tues 2/28 & Wed 2/29
•QOD #17: Business Start-up
•Review Homework (pg 155 #1-10)
•Business Firms (cont.)
•Business Start-up Games
•HW: Play your own Game
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Study for Ch 6 Quiz
Progress Report Signed
Permission Slip for Field Trip (if attending)
What type of business?
Other business structures
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Cooperatives- co-op a business that provides a service to its
members and in most cases is not run for profit
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Exceptions: non-cooperatives (See next slide!)
Farming coops- Land O’Lakes, Sunkist, Ocean Spray, Welch
Credit unions, health care & stores including REI
Franchises – a contract by which a firm (usually a corporation) lets
a person or group use its name and sell its goods or services. In
return, the person or group must make certain payments and meet
certain requirements.
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McDonald’s, Chipotle, Pizza Hut, Rubio’s, Panera Bread, 7-11, etc.
The truth about cooperatives
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Share in the earnings. Some people talk about non-cooperative
firms operating "for profit" while cooperatives operate "at cost."
This isn't totally accurate. Most cooperatives generate earnings.
They differ from non-cooperative firms in how they allocate and
distribute their earnings.
A non-cooperative firm retains its earnings for its own account, or
perhaps pays part of them out to shareholders as dividends,
based on the amount of stock each investor owns. In a
cooperative, earnings are usually allocated among the members
on the basis of the amount of business each did with the
cooperative during the year. A cooperative that has net earnings
of $20,000 during the year and conducts 2 percent of its business
with Ms. Jones. She is allocated $400 of those earnings ($20,000
x .02).
References
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http://www.rurdev.usda.gov/rbs/pub/cir55/cir55rpt.htm
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Arnold, R (2001). Economics in our times, 2nd edition. Chicago, IL: National
Textbook Company .
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http://computercleaning.files.wordpress.com/2008/03/mcdonalds.jpg
http://micpohling.wordpress.com/2008/08/07/oecd-corporate-incometax-rate-2008/
CHAPTER 6: BUSINESS FIRMS