AMERICAN BUSINESS
• 3 MAJOR TYPES
–SOLE PROPRIETORSHIP
–PARTNERSHIP
–CORPORATION
SOLE PROPRIETORSHIPS
• A business owned and operated
by one person
• Advantages
–Relatively easy to begin
–Claims all of the profits
–Your own boss
SOLE PROPRIETORSHIPS
• DISADVANTAGES
–Unlimited liability –
responsible for all of the
debts of the company
–Responsible for all aspects of
the business
–Difficult to raise revenue
PARTNERSHIPS
• 2 or more individuals agree to
own and operate a business
together
• ADVANTAGES
– They pool their resources and their
business skills
– Relatively easy to create
PARTNERSHIPS
–Share business responsibilities
–Can have some sort of
specialization
–Share risks
• DISADVANTAGES
–Relatively difficult to raise
revenue
–Must share profits
PARTNERSHIPS
–Partnership has unlimited
liability
–Decision making can be difficult
CORPORATIONS
• A legal creation that can
– Acquire resources
– Own assets
– Produce and sell products
– Incur debts (sell bonds)
– Sue and be sued
CORPORATIONS
• ***A CORPORATION IS
SEPARATE FROM THE
STOCKHOLDERS THAT
OWN IT
CORPORATIONS
• ADVANTAGES
–Effective at raising revenue
• Selling stocks
• Issuing bonds
STOCKS
• Part ownership in a corporation
• Stock owners vote for the corporate
officers (those who run the
corporation)
• Vote is in proportion to percentage of
stocks owned
• Stock owners get a share of the
corporate profits (dividends)
BONDS
• If you purchase a corporate bond, you
are lending money to the corporation
• The corporation promises to pay the
value of that bond plus interest
• Stocks and bonds are also known as
SECURITIES
CORPORATIONS
• LIMITED LIABILITY – Stockholders only
risk what they have invested
– The corporation can be sued but the
stockholders cannot
• Can mass produce product and
specialize human resources
• Tend to have a longer life than
partnerships and proprietorships
CORPORATIONS
• DISADVANTAGES
–Some red tape and expense to
get a corporate charter
–Double taxation
• Corporate profits are taxed
• Dividend income is taxed
CORPORATIONS
• Separation of ownership and
management
–Can lead to conflicting views
on the running of the
corporation
Legal Forms of Business
•Sole Proprietorship
•Partnership
•Corporation
Domestic Output by Business Type
20%
Corporations
8%
Partnerships
Corporations
84%
Partnerships
11%
72% Sole Proprietorships
Sole Proprietorships
Percentage of Firms
5%
Percentage of Sales
Source: U. S. Census Bureau
Business Terms
• PLANT – A factory, mine, store, or
warehouse; a single physical
establishment
• FIRM – a business organization
that owns and operates plants
• INDUSTRY – a group of firms that
produce the same, or similar,
products
FORTUNE 500
• Annual listing of the top
corporations in America in
terms of sales
• What companies do you
think were on the 2008 list?
http://money.cnn.com/magazines/fortune/fortune500/2008/full_list/index.html
America’s Top Corporations
2008
• 1. Walmart - $379 Billion in sales; $12.7
billion in profits
• 2. Exxon Mobil - $373 Billion in sales;
$40.6 Billion in profits
• 3. Chevron - $211 Billion in sales; $18.7
Billion in profits
• 4. General Motors - $182 Billion in sales;
LOST $38.7 Billion
America’s Top Corporations
2008
• Rest of the top 10
•
•
•
•
•
•
5. ConocoPhillips
6. General Electric
7. Ford Motor
8. Citigroup
9. Bank of America
10. AT&T
America’s Top Corporations
2008
• Other notables
•44. Microsoft
•
•
•
•
•
•
•59. Pepsi
14. Hewlett-Packard
22. Home Depot
26. Kroger
29. Costco
31. Target
34. Dell
•66. Best Buy
•67. Walt Disney
•83. Coca-Cola
•91. Macy’s
REALLY BIG BUSINESS
• Sometimes corporations merge together
with other corporations
• These mergers can create more
efficient firms that produce goods at
lower prices
• The mergers can also create
monopolies!
TYPES OF CORPORATE
MERGERS
• Horizontal Merger
–2 or more firms competing in
the same market
–Example – McDonald’s
purchases Wendy’s
TYPES OF CORPORATE
MERGERS
• Vertical Merger
–2 or more firms involved in the
production of the same product
–Example – McDonald’s buys the
trucking company that delivers
its meat and buns
TYPES OF CORPORATE
MERGERS
• Conglomerates
–When firms buy other firms that
make unrelated products
–More than 3 businesses merged
–No one business makes a
majority of the firm’s profits
TYPES OF CORPORATE
MERGERS
• Which of these types of
mergers (horizontal, vertical,
conglomerate) do you think
government regulators
have their closest eye on?
Why?
THE MULTINATIONAL
• Corporations that produce and
sell their goods throughout
the world
• Headquartered in one
country with branches in
many other countries
THE MULTINATIONAL
• They must follow the laws and pay taxes
in whatever country they are operating in
• 30 years ago, only the U.S. and England
had the largest multinationals
• Now, the largest multinationals are
multinational!
Clever, eh? 
OTHER TYPES OF BUSINESS
ORGANIZATIONS
• Franchise
–An entrepreneur pays a fee to a
“parent company” for the right to
sell that company’s product
–Usually associated with fast food
restaurants but is more broad
than that
FRANCHISE ADVANTAGES
• Name recognition
• Standardized quality
• Parent company trains and supports
the franchise employees
• National advertising
• Financial assistance
• Buying from large parent company can
mean lower prices
FRANCHISE DISADVANTAGES
• Must pay a franchise fee and
share profits with the parent
company
• Must strictly follow the
parent company guidelines
for running the business
OTHER TYPES OF BUSINESS
ORGANIZATIONS
• Non-Profit Organizations – an
organization that exists for the purpose
of benefiting society, NOT for making a
profit
• Examples – YMCA, American Red
Cross, Bill and Melinda Gates
Foundation, The Better Business
Bureau
OTHER TYPES OF BUSINESS
ORGANIZATIONS
• Almost all of them provide
services instead of goods
• They are exempt from
income taxes by government
LEVELS OF COMPETITION
• Some businesses compete in a
market with large numbers of
sellers
• Some businesses compete in a
market with relatively few sellers
• Some businesses compete in a
market with no competition
LEVELS OF COMPETITION
• Thus, the MARKET STRUCTURE for an
American business depends on their
unique competitive situation
• There are 4 basic levels of competition
– Pure Competition
– Monopolistic Competition
– Oligopoly
– Monopoly
PURE COMPETITION
• Sometimes called PERFECT
COMPETITION
• CHARACTERISTICS
– Very large number of independently acting
sellers in the market
– All the sellers produce the same,
homogeneous product; Consumers make
no difference between Product A, B, C, D,
etc…
PURE COMPETITION
• Sellers make no attempt to differentiate
their product from their competitors
• Because there are so many sellers, no
one business can increase or decrease
their output to affect the market price
• In other words, businesses do not control
the price of their product
PURE COMPETITION
• It is very easy to enter and to leave this
type of market
• In other words, no significant legal,
financial or technological obstacles
exist