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Business Firm

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antonette pajo

on 29 September 2014

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Transcript of Business Firm

Business Firm

what is business firm ?
A business firms that’s operates various plants that produce various types of goods and services is called
Limited partnership
Limited partnership is an arrangement whereby the liability of one or more partners is limited to the amount invested in the business. It is a requirements, however that there must be at least one partner with unlimited liability
Minor forms of Business organization
1. the Joint stock company.
2. the Joint venture.
3. the business trust.
Describe the current situation
Forms of Business Organizations Major Forms of Business Organization
Business firms are organized into three distinct groups: 1.Sole proprietorship
1. Major forms 2. Partnership
2. Minor forms 3. Corporation
3. Modified Corporate Form

Partnership – A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.
Joint Venture the Joint
The Joint Venture the Joint is “a partnership established for a specific project or for a limited time. A joint venture is formed when a foreign company finds a local partners to share the cost and operation of the business.
There are different kinds of cooperatives. They are the following:

1. Credit union-
2. Producer’s cooperative
3. Marketing cooperative-
4. Consumer’s cooperative-

1. Production
2. Manufacturing
3. Trading
4. Service Business

1. Production –a process of combining various material inputs and immaterial inputs in order to make something for consumption. It is the act of creating output, a good or service which has value and contributes to the utility of individuals includes poultry farming, vegetable, fruit farming and fishpond business.
2. Manufacturing – process of converting raw materials into finished products. The manufacturer buys the raw materials. He makes the raw materials to finished products by applying direct labor and factory overhead.
Sole Proprietorship
1. Sole Proprietorship – the simplest form of business organization; only one individual owns all the assets. He is the boss and the general manager of his business.
1. Easy to form
2. Less Government requirements
3. Owners can keep his moves unknown to competitors
4. Fast decision making
5. Suited to small business

1. Lack of the necessary ability and experience
2. Difficulty in attracting and keeping quality employees
3. Limited source of capital

Tax Advantages

Considered a discrete asset: Can be transferred to other people, not like a sole proprietorship.
Ease of being setup and maintained: You don’t need to register with your state and pay fees as corporation or LLC is required to do.
Lower audit rates: Individuals that have their business structured under a partnership are far more unlikely to get audited than sole proprietors.
No double taxation: The earnings of the partnership are not taxed at the business level. Income is only taxed at the individual level.
Liability: Both partners are considered to be 100% liability for business liabilities, not just their share of the business.
Lower audit rates: Individuals that have their business structured under a partnership are far more unlikely to get audited than sole proprietors.
Two tax returns: The partnership is required to file IRS Form 1065. This is an informational return that is used since details of profits and losses that are passed to individual owners are not displayed in detail on their individual returns.
3. Trading or merchandising - a process of buying and selling goods that are produced or manufactured by other firms. It is also the exchange of one's goods and services for desired goods and services that someone else possesses. Example is direct selling (non-store trading)
4. Service business – doing works for others. Examples are beauty parlors, spa, medical, dental, accounting other service of professionals.
For example, B. Smith has his eye on a tract of land in a growing area. He has a plan on how to profitably build ten homes on the property but he does not have the money to complete the job. His friend, Jeff, has money to invest but does not know how to develop land. Bill and Jeff can form a limited partnership that will allow Jeff to limit his liability. So, Jeff contributes his capital to the LP in exchange for an interested in the limited partnership. Bill acts as general partner and manages the construction. Preferably, to take liability protection a step further, Bill could incorporate or form a limited liability company to be the general partner. This scenario would allow for the maximum of liability and asset protection for Bill and Jeff in their venture.
Corporation is business firm owned by individuals or other corporation. Just like an ordinary person, it has rights to buy, sell and enter into contracts. It has a legal and distinct personality apart from those who own it.
It is a form of business wherein the capital is divided into small units permitting a number of investors to contribute varying amounts to the total profits being divided between stockholders in proportion to the number of shares they own.
Two forms of joint stock company
Common Law form
1. Capital is divided into shares which may be transferred by the owner to other persons without the consent of the other members.
2. The company is managed by a board of directors.
3. Death or incapacity of any member does not dissolve the company.
4. It has members than a partnership, not necessarily acquainted with one another, and membership can change without the consent of the members.
Statutory Form
1. No legal personality
2. Mutual agreement governs the relationship between the members.
3. Liability of members is unlimited unless otherwise authorized by statue.

The business trust
The business trust is a legal form of business organization where a trustee is appointed to manage the business and operates through a trust relationship. If a person or company is not capable of managing a property, securities or other assets, these are assigned to a trustee and a business trust is formed. The trust company can be a trustee, reciver, guardian or executor of property or estate.
Modified Corporate form of business organization
the corporate form of ownership was modified to suit special requirements. these are two forms namely :
Mutual Companies

is a firm owned by a group of people who have a common objective and who collectively bear the risks of the enterprise and share ist profits.
. Credit union- This is one that accepts deposits from its members and lends money, also to its members, at reasonable rates.

This is organized by members to mutually assists one another in the procurement of raw materials, machinery equipment, and other needs of the producers.
3. Marketing cooperative- This is organized to assist its members in the marketing of their products.
4. Consumer’s cooperative- The purpose of this firm is to provide members with quality goods and services readily available to its members at a lower cost.

Based on Jim Harvey's speech structures
A feature of capitalist is the business firm. The individual business firm is an organization under single management established for the purpose of making profits for its owners by making one or more items available for sale in the markets.
Business firms engaged with:
Mutual insurance company
1. Mutual savings banks- These are firms owned by depositors and which specialize in savings and mortgage loans.
Debt instruments
Corporate stock
Two major classes of corporate stock

Type of Organization Financing Source
Single proprietorship - owner’s personal funds
- Borrowings from private persons or banks
Partnership - partners personal funds
- Borrowings from private person or banks
Corporation - sale of shares of stock
- Borrowing through issuance of debt instruments like bonds and promissory notes
- Borrowings from banks

Corporate stock is the capital or monetary fund that a company raises through the sale of shares.
common stock - The capital stock (or simply stock) of a business entity represents the original capital paid into or invested in the business by its founders. It's a security for creditors since it cannot be withdrawn to the detriment of the creditors.
preferred stock - also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and adebt instrument and is generally considered a hybrid instrument. Preferred stock, also called preferred shares, preference shares, or simply preferreds, is a special equity security that has properties of both an equity and adebt instrument and is generally considered a hybrid instrument 6th slide

• A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract. Types of debt instruments include notes, bonds, certificates, mortgages, leases or other agreements between a lender and a borrower. 7th slide

Financing the Business Firm
Business firms are financed in a variety of ways. Their sources of financing differ, however, depending on the type of organization they have adapted.

The single proprietorship and partnership have almost identical sources of financing. The difference is that the change of gathering bigger amounts of capital is higher in partnerships than in sole proprietorships.

Corporations are of different mold. They can harness the resources of a large number of people through effective distributions of shares of stocks.

Single Proprietorship – The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

Partnership – A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.

Corporation - A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.

The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts.

Mutual companies- A mutual company is a financial- service firm (such as an insurance company or a savings and loan association) owned by its policyholders or depositors.
2. Mutual insurance company- This is Cooperative Corporation organized and owned by the policyholders. Voting control is in the hands of the insured’s.

Table 35 Sources of Financing for Business Firms
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