1
Mr. Jordan
9th Grade Economics
III. Microeconomics
2. Business Organizations [i]
Background
The purpose of this sub-unit is to help you to understand that there are different types of business organizations,
each with certain advantages and disadvantages. In a mixed market economy, businesses are not free to do anything
they wish. They are restrained by laws aimed at protecting the best interest of the public and the economic system.
Today, there are well over 16 million businesses in the United States. They range from the individual proprietor
selling handmade crafts or hot dogs at the country fair to the General Motors Corporation, which has over 700,000
employees and over $40 billion in assets.
Scenario 1:
Jasmine Bigprofit always wanted to have her own business. She had worked in a number of clothing store
businesses and felt that she knew how to organize and felt that she knew how to organize and run such a business.
She especially liked the idea of opening an accessory shop. She felt that it would be a business she could operate
very profitably. To get started, she used her own money and some that she borrowed from a local bank to rent a
small building in a popular area, buy the needed equipment, and stock the store.
Since her funds were limited, she had to begin with a small business. She became a sole proprietor. She liked being
her own boss and making all the decisions for the business. Of course, she had to spend a lot of time at the business
personally supervising everything and had to do without some personal things because her money was all tied up in
the business. There were so many things that were needed! Some of them, like insurance, were very important
because, as the sole proprietor, she was personally responsible for any accidents or injuries that might happen at her
store. Still, Jasmine got a lot of personal satisfaction from her business. It took up much of her time and was not as
profitable as she had hoped that it would be, but she had created it herself and was very proud to be the owner.
Scenario 2:
Tommy Wannabe had big plans—bigger than he could afford. He had long thought that people would like to spend
the evening at an entertainment center that would provide a number of activities including a bowling alley, theater,
skating rink, and a number of other smaller fun places. Since nothing like this existed nearby, Tommy thought it
would be a very profitable business. He had saved some money and had some property that he could sell or use as
collateral to borrow money from the bank. But he knew that it would not be enough. Then he met Tim and Tina.
Both Tim and Tina were enthusiastic about the entertainment mall idea and had money that they could invest in the
business. Tina had a lot of experience in public relations and advertising. Tim had a lot of experience in managing a
business. Together they could make a good team.
After much discussion, they decided they would put their resources together into an equal partnership and share
control of the whole mall.
Everything went according to the plan. The mall was built and opened for business. Profits were slim because they
had many debts to pay. Generally the partners got along with each other, but sometimes they argued about business
decisions. Tim and Tommy were very cautious about how money was spent, but Tina was much more willing to
take chances to increase profits.
Generally they were happy with their enterprise. The only real scare was when the Johnson boy injured himself
while he was skating. Since the manager of the roller rink had not been watching the skaters as he should have been,
the insurance company told Tommy, Tim, and Tina that they would have to be personally responsible for any
medical bills or lawsuits. Luckily, the little boy was alright, but for a while the partners thought that they might lose
everything
they
owned.
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Scenario
3:
Beyonce Knows was always fascinated with electronics and math. While she was working on a master’s degree in
physics, she began experimenting with computers. After a lot of hard work, she developed an inexpensive but very
powerful computer that was appropriate for home and business use. She did not have the resources to produce the
computer on her own. She realized that to compete with the well-established computer companies, she would have
to begin production on a big scale. After seeking legal advice and much support from friends and interested
investors, Beyonce incorporated “BK CompuCo,” a legal corporation that would manufacture and distribute her
computer system. By making BK CompuCo a corporation, Beyonce was able to benefit from its legal status. If the
company failed or was sued, all Beyonce could lose was what she had invested in BK CompuCo. This was true for
all of her investors. Also, it was easy to raise money for the business since shares or stock in the company could be
sold
to
other
investors.
When additional investment money was needed, the assets in the corporation could be used as collateral to get loans.
Beyonce owned a controlling interest in the company and was chairwoman of the board. Other large shareholders
were the other members of the board of directors. They all shared in making decisions concerning the future of the
corporation. Even though the business was a success, sometimes Beyonce felt like he had little day-to-day
functioning of the company. Her design was selling well and BK CompuCo was making profits, but there was no
time or opportunity for Beyonce to personally work in the research department or supervise production. Of course,
the corporation now had professionals doing those jobs.
Definitions
Use the information from the three scenarios to write a definition for each of the three types of business
organization.
Sole Proprietorship:
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Partnership:
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Corporation:
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