Current Events:
http://www.bloomberg.com/video/64196916/
Nov. 2 (Bloomberg) -- Neil Grossman, managing partner and chief investment officer for TKNG Capital Partners, talks about the potential impact of Federal Reserve quantitative easing on the U.S. economy and financial markets. Grossman speaks with Matt Miller and Carol Massar on Bloomberg Television's "Street Smart." (Source: Bloomberg)
Fed Will Probably Start $500 Billion of Bond Buys, Survey Shows (encouraging inflation)
Fed poised for biggest decision in decades
Fed Easing May Mean 20% Dollar Drop
End of dollar hegemony; the Fed risks accelerating the demise of the dollar-based currency system.
Chapter 3
Business Organizations, p. 60
Section 1 Forms of Business Organization, p. 61
Most businesses operate in search of profits. Others are organized and operate like a business, although profits are not their primary concern. There are three main forms of business organization. The first is the sole proprietorship, which is a business owned and operated by one person. The second is the partnership, which is a business jointly owned by two or more persons. The third is the corporation, which is recognized as a separate entity having all the rights of an individual. The proprietorship is the most common and most profitable form of business organization. The corporation is the largest and most visible.
One is a sole proprietorship which one individual, the sole proprietor, exercises complete control over the business. Another is a partnership in which two or more individuals combine their efforts and share the profits of the business. Under both business forms, the business is an asset owned by the owner or owner, it has no existence separate from them, and any financial or legal problems encountered by the business are their responsibility. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.
Chapter Three Spotlight Video
Content Vocabulary
Some Real Examples
Some Final Basics
Why It Matters Today
Corporations and Stocks game
Cf. http://www.shmoop.com/corporations-stocks/game.html
double taxation
This is a definition of what is commonly labeled “double taxation,” corporate profits are taxed and then, if distributed in the form of dividends, these same profits are taxed again along with the rest of the shareholder’s income.
Academic Vocabulary
comprise
entity
Reading Strategy
Contrasting
Companies in the News
Main types of business, 6:20
Types reviewed and advantages and disadvantages
In-class assignment: what are the types reviewed, what are their respective advantages and disadvantages?
Corporations are everywhere. You probably deal with thousands of them every day They're such a critical part of the American economy that you probably don't even notice or think about it.
But this wasn't always the case. When the United States was born, corporate charters were rarely granted. The benefits gained through incorporation were considered so great, they were offered only to businesses that served a broad public interest. A ferry company might receive a corporate charter, but an ordinary factory would not. If you proposed to build a canal that would link towns and expand trade, the state might grant you charter. But if you sought to incorporate your flour mill, you would probably be turned away.
Long story short: you could only incorporate if your business was going to do something very special to serve the public interest.
By the middle of the nineteenth century, however, these views had changed. Policymakers came to realize that the corporate form served all Americans by facilitating economic growth. For business owners, the corporation offered a way to increase both their capital and the stability of their businesses. For investors, the corporation offered a relatively risk-free way of taking part in emerging commercial opportunities.
Today, corporations bring in more than 80% of all dollars earned in America. Savvy stock investors participate in a global exchange worth more than $100 trillion. Corporations are here to stay, and they provide many of the best opportunities for individuals to get ahead in the world. Yet many people are left behind simply because they do not understand how to read a financial website. Are you one of them? Read on, and you won't be.
A trip through the local strip mall might suggest that corporations are taking over America—everywhere you look, you'll see Starbucks and Walmarts; the locally owned "mom and pop" business might start to seem like a dinosaur. But, as is often the case, the statistics tell a different story. The number of sole proprietorships and partnerships (based on the number of tax returns filed) increased by more than 53% between 1990 and 2006; the net income earned by this sector of the economy increased by almost 500%. In comparison, the number of corporations increased by 57%; their net income increased by 425%.
But corporate receipts accounted from more than 80% of all dollars earned in 2006.
Does that mean that America’s small business community is growing as fast as its corporate sector? Not exactly. Sole proprietorships, partnerships, and corporations are distinct forms of business organization—and size is not really the defining feature of any of them.
Why It Matters Today
Ever think about starting your old small business? Maybe even something as simple as mowing lawns or babysitting neighborhood kids? If you wanted to set yourself up legit, you'd probably start with a sole proprietorship. It's simple, it's easy, and it's cheap.
Later, if your lawn-mowing or babysitting business really takes off, you may outgrow the basic structure of the sole proprietorship. Once you have employees, or grow large enough to fall under government regulation, or begin to worry about liability issues, it's probably time to incorporate.
Sole Proprietorship, p. 62
Main Idea
Forming a Proprietorship
Advantage
Disadvantages
Reading Check, p. 64
Describing
What are the major disadvantages of a sole proprietorship?
The most basic and fundamental type of business organization is the sole proprietorship. Within these types of businesses one individual, the sole proprietor, exercises complete control over the business and is legally and financially responsible for the activities of the business. If a customer trips and breaks a leg, the proprietor is sued; when it’s time to expand, the proprietor must secure the loan under his or her name.
A slightly more complex form of business organization is a partnership. Under this arrangement, two or more individuals combine their efforts and share the profits of the business. They also share all of the risks, as well as the financial and legal responsibilities. The details are generally spelled out in a letter of agreement between the partners.
Within a partnership, one individual is not held entirely responsible for the activities of the business. But for the most part, sole proprietorships and partnerships are very similar. The business is an asset owned by the owner or owners, it has no existence separate from the owners, and any financial or legal problems encountered by the business are the legal responsibility of the owners. All of the owners’ assets, even those not involved in the business, are at risk. Liability is unlimited.
That issue of liability is the single biggest reason why many businesses choose to incorporate; a corporate structure protects the business owner from individual liability if things go wrong with the business. Sales go in the toilet while costs shoot through the roof? Somebody wipe out on your sidewalk and sue you for millions of dollars worth of "pain and suffering"? If your business is a sole proprietorship or partnership, you might end up losing everything. But if you've incorporated, the business may be toast but you, as an individual, are protected.
Partnerships
Main Idea
Types of Partnerships
Forming a Partnership, p. 65
Introduction to Shark Tank, 3:49
Cf. http://www.youtube.com/watch?v=G9BGc3yxJ8Q&p=FB2A2A6F9312F01B&playnext=1&index=13
Shark Tank - Season 1 Episode 1 Part 1/5, 9:49
In-class assignment: how many "sharks" are there on the panel? We will divide the class the same number of members in a small group. You have two tasks: one, do you think the "shark" you are representing will want to partner with the presenter? Two, would you want to partner with the presenter? We will go around the room and you can offer your assessment.
1) Kevin O.
2) Barbara
3) Kevin H.
4) Damon
5) Robert
Advantages
Disadvantages, p. 66
Reading Check
Contrasting
What are the differences between a general partnership and a limited partnership?
Corporations, p. 67
Main Idea
What is a Corporation?, 7:15
According to this video, what is a corporation? What is it composed of? What sort of characteristics are typical of a corporation?
Forming a Corporation
A corporation is a very different type of business organization. Most significantly, a corporation is a business entity legally separated from its owners. When business owners decide to incorporate they secure a charter from the state government. This charter is like a birth certificate, establishing the existence of a new and separate legal entity. Once incorporated, the corporation can buy and sell property, enter into contracts, sue, and be sued... just like a living, breathing person.
In fact, that's what a corporation is: a legal "person." (The word "incorporate" shares the same root as "corpse"; it means something like "to give it a body.") The idea is that the corporation is a fictitious person, with many of the same rights under the law as a real person.
For the sole proprietor turned corporation, there are several benefits. Most importantly, his personal assets (home, car, boat, iPod) are no longer at risk should the corporation have problems. If the corporation is sued, only its assets are at risk. If the corporation goes broke, its creditors can only go after the corporation’s assets. As there is a legal barrier separating the corporation and its owners, the owners enjoy limited liability.
There are other benefits as well. To finance expansion, corporations may sell stock. Most corporations, in fact, do not sell stock to the public; all of the stock is privately owned. But if a company decides to expand its capital base by “going public” it issues an initial public offering or IPO. People buying the stock acquire partial ownership in the corporation. And the more shares they buy, the larger percentage of the corporation they own. Of course, this also means that the original owners also have to share profits. These may be distributed to the shareholders quarterly in the form of dividends.
Corporations may also raise money by selling corporate bonds. Like governments, corporations may issue bonds that promise repayment over a specified period at a certain interest rate.
Another benefit of turning a sole proprietorship or partnership into a corporation is that the business becomes more durable—that is, it is no longer so tied to the health of the founder. If the founder dies, the corporation lives on. Similarly, a corporation is less dependent on the talents of its founders. As corporations grow, they are governed by a board of directors elected by the shareholders. This board selects a president or CEO (chief executive officer) to manage the corporation. A sole proprietorship may have a technically brilliant but, from a business point of view, inept founder. He may turn the business over to his even more incompetent children. But the governing structure of corporations allows management to be handed over to professionally trained executives.
Why It Matters Today
Are corporations people?
The common-sense answer is no. A corporation is not, to state the obvious, actually a living human being.
But in the eye of the law, the answer is essentially yes. A series of Supreme Court decisions in the 1800s expanded the rights of corporations, eventually extending to them the crucial rights to substantive due process included in the 14th Amendment. As recently as January 2010, the Court reaffirmed that corporations have most of the rights of real people, overturning a campaign finance law on the grounds that it violated corporations' (and unions') right to free speech.
Corporate Structure
In Motion Corporate Structure
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p68.swf
Advantages, p. 68
Financially, corporations benefits from being allowed to raise capital by selling stock. In purchasing stock, stockholders become partial owners of the corporation and are entitled to a share of the profits. Corporations can also raise money by selling bonds like a government. Legally, corporations benefit from limited liability. Since the corporation is a legal entity separate from its owners, the owners’ personal assets are not placed at risk by any action taken by the corporation. Should the corporation be sued or have financial problems, only corporate assets can be seized.
Disadvantages, p. 69
Through what is commonly labeled “double taxation,” corporate profits are taxed and then, if distributed in the form of dividends, these same profits are taxed again along with the rest of the shareholder’s income.
Reading Check, p. 70
Evaluating
Why do many business owners prefer corporations over other forms of business organizations?
Entrepreneur, p. 71
Profiles in Economics
Andrea Jung
On Charlie Rose - Andrea Jung, 2:20
Proprietorship - owned and run by a single person.
Partnership - jointly owned by two or more persons.
Corporation - business organization recognized by law as a separate legal entity with all the rights of an individual.
References
Forms of Business Organizations, Tax and Insurance Issues for Small Business, 9:56
Learn: * How to Choose a Form of Business * How it can maximize your protections and future growth potential * Characteristics of a sole proprietorship, general partnership, corporation, limited liability companies and limited liability partnerships * Whether S Corporation Tax election is right for you * What tax issues are important for small business and why * What insurance coverage every small business owner should consider
Panelists
Larissa Buerano, Agent, State Farm Insurance
Rajeev Kaul, CPA, PC.
Joyce Moy, Executive Director, Asian American / Asian Research Institute - CUNY
My Own Business: A course on how to start a business
Chapter 3: Business Organizations
Self-Check Quizzes
Crossword Puzzle
Vocabulary eFlashcards
Show Business is the Federal Reserve Bank of Boston's learning activity on economics and the entertainment industry. The goal is to provide an additional tool for teaching and learning about basic economic concepts, with some economic history snuck in.
Cf. http://www.bos.frb.org/entertainment/index.htm
JA Titan
Test your skills running a business in this ultimate business simulation! As CEO, you will match wits in the competitive, technologically advanced industry of the Holo-Generator™.Cf. http://oldtitan.ja.org/home.php
Corporations and Stocks game
Cf. http://www.shmoop.com/corporations-stocks/game.html
A music video from School House Rock on investing and Wall Street.
Cf. http://www.shmoop.com/corporations-stocks/botw/resources?d=http://www.gamequarium.org/cgi-bin/search/linfo.cgi?id=3797
Preview
Ch. 3 Sec. 2 Business Growth and Expansion
Honors Business Economics Chapter 3 Section 2 Business Growth and Expansion
Guide to Reading
Section Preview
Content Vocabulary
Academic Vocabulary
Reading Strategy
Comparing
Companies in the News
Reinvesting for Monster Growth
Growth Through Reinvestment
Main Idea
Economics and You
Estimating Cash Flows
Reinvesting Cash Flows
Reading Check
Summarizing
What is the benefit of reinvesting cash flow in a business?
The Global Economy and You
Know Your Manners
Growth Through Mergers
Main Idea
Economics and You
Types of Mergers
Reasons for Merging
Conglomerates
Multinationals
Reading Check
Contrasting
How do conglomerates and multinationals differ?
Case Study
7-Eleven
Preview
Honors Business Economics Chapter 3 Section 2 Business Growth and Expansion
Guide to Reading
Section Preview
Content Vocabulary
Academic Vocabulary
Reading Strategy
Comparing
Companies in the News
Reinvesting for Monster Growth
Growth Through Reinvestment
Main Idea
Economics and You
Estimating Cash Flows
Reinvesting Cash Flows
Reading Check
Summarizing
What is the benefit of reinvesting cash flow in a business?
The Global Economy and You
Know Your Manners
Growth Through Mergers
Main Idea
Economics and You
Types of Mergers
Reasons for Merging
Conglomerates
Multinationals
Reading Check
Contrasting
How do conglomerates and multinationals differ?
Case Study
7-Eleven
Figure 3.4 Growth Through Reinvestment, p. 73
Cf. http://glencoe.com/sites/common_assets/socialstudies/in_motion_08/epp/EPP_p73.swf
Money (That's What I Want), 2:36
Barrett Strong recorded this in 1959 for Motown records, it reached number 2 on the R&B charts and 23rd on the US Pop charts making it Motown's first hit. Barrett Strong later went on to become one of Motown's most famous song writers.
http://www.youtube.com/watch?v=z6xkT7FMyTc
Beatles, You Never Give Me Your Money, 3:26
Resources
HW email to gmsmith@shanahan.org or hand in hard copy.
Wednesday HW
1. Reading Check, Describing, What are the major disadvantages of a sole proprietorship (p. 64)?
2. List four personal characteristics that you think are most important in forming a successful small business partnership. Why do you think each characteristic is important?
3. Write a paragraph that responds to the following questions: Who would you be interested in starting a business partnership with, and what kind of business would you start? What skills would you each bring to the business? How would you handle the disadvantages of partnerships (answers listed in the textbook)?
