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Economics Ch. 3: Business Organizations
Typology: Exams
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Economics Ch. 3: Business Organizations
What are the three types of business organizations? Describe each.✔✔
Sole proprietorship: A business owned and operated by one person
Partnership: A business owned and operated by two or more people.
Corporation: A large business not owned by individuals, but that is owned by many stockholders. This type of business must be approved by the government.
What are the advantages and disadvantages of a sole proprietorship?
✔✔Advantages: Easy to start, easy to manage, profits are not shared, do not pay income taxes, and easy to end the business.
Disadvantages: The one owner is fully responsible for all losses, difficult to raise capital ($), the owner often has little experience, and difficult to find qualified employees.
What are the advantages and disadvantages of a partnership?✔✔Advantages: Easy to start, easy to manage, lack of special taxes, easily attract capital, larger size makes it run more smoothly, and easier to attract qualified employees.
Disadvantages: Partners are responsible for each other, the business must be re- organized if one partner leaves, and the potential for conflict between partners.
What are the advantages and disadvantages of corporations? ✔✔Advantages: Easy to raise money, professional managers run the company, stockholders (part owners) are not responsible for losses, unlimited life, and easy to transfer ownership (stock shares)
Disadvantages: Difficult and expensive to get government approval to start, stockholders (owners) have no say in how the business is run, double taxation, and more government regulation.
What is a merger? ✔✔A merger is when two or more companies combine into one company.
How is the government like a business? ✔✔The government provides goods and services to citizens, such as electrical power, waste management, and the postal service.