orgmgnt-week-4.pptx

 The Role of Business in the 1.Market Economy is a social arrangement that allows buyers and sellers to discover information and complete voluntary exchanges of goods and services. allow you as a consumer to purchase the goods and services that you want. Through markets, information is transm...

 The Role of Business in the 1.Market Economy is a social arrangement that allows buyers and sellers to discover information and complete voluntary exchanges of goods and services. allow you as a consumer to purchase the goods and services that you want. Through markets, information is transmitted between buyers and sellers about: a.The goods and services desired by consumers, and; b. The price of those goods and services bring consumers and producers together to coordinate the exchange of resources. Both the buyer and seller must stand to gain from the trade or else the transaction will not occur.. Coordinating Trade and Commerce 2 Commerce is an act of trading something of economic value such as a good, service, information, or money between two entities. Trade is what increases our standard of living. Instead of having to produce everything that you consume on your own, you are able to trade with others and obtain a higher quality of life. 3. Product or Service Specialization Businesses bring “specialized” people, equipment, and other resources together and coordinate the production of goods and services. 4. Economies of Scale When more units of a good or a service can be produces on a larger scale, yet with (on average) less cost input cost, economies of scale are achieved. This means that as a business grows and production units increase, a business will have a better chance to decrease its cost. 5. Positive and Negative Externalities An externality is defined as a benefit or cost that is imposed on a third party, such as society, other than the producer or consumer of a good or service, or, more simply, an economic side effect. Phases of Business Organization The form of a business organization may depend on its purpose, nature of operation, and resources. However, a business organization’s form may change with the changing times and the demands they present. Change is constant and organizations continue to undergo various changes to ensure effectiveness, efficiency, and relevance in the world of business. Economic Development Is the process by which a nation improves the economic, political, and social well-being of its people. can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base. 1. Malthusian: Thomas Robert Malthus (1766- 1834) A theory about economic growth which depends on the rate of the population of a certain area. The economic growth is inversely proportional to population. The smaller population, the higher the economic growth and vice versa 2. Government -LED (Local Economic Development) An approach towards economic development which allows and encourages local people to work together to achieve sustainable economic growth and development. Support the formation of a partnership between local and national institutions towards strategic implementations. 3 A LA KUZNETS (GOVERNMENT VS. ENVIRONMENT) by Simon Kuznets The existence of a pattern or behavior, between economic growth and environmental degradation, consistent with the environmental Kuznets curve (EKC) hypothesis.. 4 Human Capital Based Is a measure of the economic value of an employee’s skill set. Refers to the knowledge, skill sets and motivation that people have, which provide economic value. It could be invested in through education, training and enhanced benefits that lead to an improvement in the quality and level of production. 5. Post demographic transition Proposed in 1929 by Warren Thompson Is the transition from high birth and death rate to lower birth and death rate as the country develops from pre- industrial to an industrialized economic system. fertility rate decreases when child mortality is low, and is weakly  Types of Business Organization It is important that the business owner seriously considers the different forms of business organization—types such as sole proprietorship, partnership, and corporation. Which organizational form is most appropriate can be influenced by tax issues, legal issues, financial concerns, and personal concerns. For the purpose of this overview, basic information is presented to establish a general impression of the business organization. 1. Sole Proprietorship A Sole Proprietorship consists of one individual doing business. Sole Proprietorships are the most numerous form of business organization in the United States, however, they account for little in the way of aggregate business receipts. Advantages Ease of formation and dissolution. Establishing a sole proprietorship can be as simple as printing up business cards or hanging a sign announcing the business. Taking work as a contract carpenter or freelance photographer, for example, can establish a sole proprietorship. Likewise, a sole proprietorship is equally easy to dissolve. Typically, there are low start-up costs and low operational overhead. Ownership of all profits. Sole Proprietorships are typically subject to fewer regulations. No corporate income taxes. Any income realized by a sole proprietorship is declared on the owner’s individual income tax return. Disadvantages Unlimited liability. Owners who organize their business as a sole proprietorship are personally responsible for the obligations of the business, including actions of any employee representing the business. Limited life. In most cases, if a business owner dies, the business dies as well. It may be difficult for an individual to raise capital. It’s common for funding to be in the form of personal savings or personal loans. The most daunting disadvantage of organizing as a sole proprietorship is the aspect of unlimited liability. An advantage of a sole proprietorship is filing taxes as an individual rather than paying corporate tax rates. Some hybrid forms of business organization may be employed to take advantage of limited liability and lower tax rates for those businesses that meet the requirements. These include S Corporations, and Limited Liability Companies (LLC’s). Where S-Corps are a Federal Entity, LLC’s are regulated by the various states. LLC’s give the option for profits from the business to pass through to the owner’s individual income 2. Partnership A Partnership consists of two or more individuals in business together. Partnerships may be as small as mom and pop type operations, or as large as some of the big legal or accounting firms that may have dozens of partners. There are different types of partnerships—general partnership, limited partnership, and limited liability partnership— the basic differences stemming around the degree of personal liability and management Advantages Synergy. There is clear potential for the enhancement of value resulting from two or more individuals combining strengths. Partnerships are relatively easy to form; however, considerable thought should be put into developing a partnership agreement at the point of formation. Partnerships may be subject to fewer regulations than corporations. There is stronger potential of access to greater amounts of capital. No corporate income taxes. Partnerships declare income by filing a partnership income tax return. Yet the partnership pays no taxes when this partnership tax return is filed. Rather, the individual partners declare their pro- rata share of the net income of the partnership on their Disadvantages Unlimited liability. General partners are individually responsible for the obligations of the business, creating personal risk. Limited life. A partnership may end upon the withdrawal or death of a partner. There is a real possibility of disputes or conflicts between partners which could lead to dissolving the partnership. This scenario enforces the need of a partnership agreement. As pointed out, unlimited liability exists for partnerships just as for sole proprietorships. One way to alleviate this risk is through Limited Liability Partnerships (LLP’s). As with LLC’s, LLP’s may offer some tax advantages while providing some risk protection for owners. 3. Corporation Corporations are probably the dominant form of business organization in the United States. Although fewer in number, corporations account for the lion’s share of aggregate business receipts in the U.S. economy. A corporation is a legal entity doing business, and is distinct from the individuals within the entity. Public corporations are owned by shareholders who elect a board of directors to oversee primary responsibilities. Along with standard, for-profit corporations, there are charitable, not-for-profit corporations. Advantages Unlimited commercial life. The corporation is an entity of its own and does not dissolve when ownership changes. Greater flexibility in raising capital through the sale of stock. Ease of transferring ownership by selling stock. Limited liability. This limited liability is probably the biggest advantage to organizing as a corporation. Individual owners in corporations have limits on 11 their personal liability. Even if a corporation is sued for billions of dollars, individual shareholder’s liability is generally limited to the value of their own stock in the corporation Disadvantages Regulatory restrictions. Corporations are typically more closely monitored by governmental agencies, including federal, state, and local. Complying with regulations can be costly. Higher organizational and operational costs. Corporations have to file articles of incorporation with the appropriate state authorities. These legal and clerical expenses, along with other recurring operational expenses, can contribute to budgetary challenges. Double taxation. The possibility of double taxation arises when companies declare and pay taxes on the net income of the corporation, which they pay through their corporate income tax returns. If the corporation also pays out dividends to individual shareholders, those shareholders must declare that dividend income as personal income and pay taxes at the individual income tax rates. Thus, the possibility of double taxation.