| Exercises | On the Net I Economics Consultants I Added Perspective |
| Review | Interactive Quiz I Interactive Quiz--Appendix I PowerPoint Review Slides I More Study Aids |
| Research |
Chapter in a Nutshell
A wide variety of different types of business firms operate in our economy. Not only do they differ according to the types of product they make, but they differ in how they are owned and organized. We can classify the vast array of business firms into three categories - proprietorships, partnerships, and corporations. Each category has distinct rules regarding the ownership and organization of firms. For example, sole proprietorships and partnerships are subject to unlimited liability - the owners of these businesses are personally liable for all of the debts they may incur. Corporations, on the other hand, have limited liability, meaning that shareholders can lose only what they have invested in the company. The financing of proprietorships, partnerships, and corporations differs significantly too. This chapter should make you keenly aware of the fact that no one type of business organization is ideal in all circumstances. Each has unique advantages and disadvantages.
After you study this chapter, you should be able
to:
· Explain the implications of unlimited liability for sole proprietorships.
· Contrast proprietorships with partnerships.
· Describe the way limited liability works for corporations.
· Distinguish between stocks and bonds as methods of financing corporations.
· Present a scenario for a corporate takeover.
· Outline the organization of businesses in the United States.
· Profile stockholders of U.S. corporations.
· Compare and contrast international and multinational corporations.
• The Small Business Advancement National Center (http://www.sbaer.uca.edu/), the Small Business Advisor (http://www.isquare.com/), and the U.S. Small Business Administration (http://www.sba.gov/) provide educational materials addressing business ownership and organization.
• Exxon (http://www.exxon.com/), General Motors (http://www.gm.com/), Mobil (http://www.mobil.com/), Ford (http://www.ford.com/), and IBM (http://www.ibm.com/) are among the largest U.S. multinational corporations.
Geoff Merritt owns Software For Sale, a computer software store in Urbana, Illinois. Geoff's sales have doubled in the past year, and more than quadrupled over the past three years. Based on this success, Geoff wishes to expand his business to other areas around campus. Currently, Geoff operates Software For Sale as a proprietorship. However, he is concerned that this is not the optimal form of business organization. Also, Geoff is worried that he doesn't have enough money to fund his new stores.
Geoff has approached Economic Consultants for advice about how to organize his business. Prepare a report for Geoff that addresses the following issues:
• U.S. Small Business Administration
(http://www.sba.gov/)
The U.S. Small Business Administration provides information on starting, financing, and expanding a business.
• Inc. Online
(http://www.inc.com/)
Inc. magazine provides news and information for growing businesses.
• U.S. Internal Revenue Service (IRS)
(http://www.irs.ustreas.gov/prod/bus_info/index.html)
The IRS provides tax information for businesses.
• The Small Business Advancement National
Center
(http://www.sbaer.uca.edu/)
The Small Business Advancement National Center provides information and assistance for small business
owners.
• The Small Business Advisor
(http://www.isquare.com/)
This site offers online information for the entrepreneur and new business owner.
Added Perspective: More on the Net
• Morningstar.Net (http://www.morningstar.net/) provides news and commentary about mutual funds, and E*Trade Securities (http://www.etrade.com/) enables you to invest in mutual funds. Perhaps you haven't any money to spend on mutual funds. Try your hand at the E*Trade investment game (http://game.etrade.com/)-it won't cost you a dime.
• Auto multinationals worldwide demonstrate their multinational character through their Web sites. For examples, visit the Chrysler Global Gateway (http://www.international.chrysler.com/), Ford WorldWide Connection (http://www.ford.com/global/), and Volkswagen Asia-Pacific (http://www.vwap.com/).
Test your understanding of the chapter's concepts with the interactive quiz. The quiz contains twenty multiple-choice questions, like those found on a typical exam. Questions include detailed feedback for each answer, so that you may know instantly why you have answered correctly or incorrectly. In addition, you may email yourself and/or your instructor the results of the quiz, with a listing of correct and incorrect answers. Finally, check your results versus other students around the world -- previous scores to quizzes are displayed online.
How to Take the Quiz
Start the quiz, type in your
name (required), your email address (optional), and the email address of your instructor (optional). Answer
the questions (as many or as few as you like, but you need to answer at least one question). Then hit
the submit button and see your results. At the results page, click on the link in the "description"
column to see feedback on your answers. Scroll down the page to see quiz results from students around
the world.
Stock Repurchase: What is it and Why?
When people discover a corporation with particularly good prospects, it may be a smart idea for them to buy into the corporation, that is, to buy some of the corporation's stock. But what may be a smart idea for people may also turn out to be a smart idea for the corporation itself. After all, the corporation is always looking out for the best possible investment it can make. Why not, then, invest in itself? If others think it's a good place to invest money, why shouldn't the corporation think so as well? That is to say, why shouldn't the corporation buy its own stock? The answer is that many corporations do precisely that! Such corporate investment is called "stock buyback" or "repurchase." The corporation goes onto the stock market to buy its own stock from stockholders in the belief that it will gain more by investing the corporation's money in buying the stock than it would gain by using the corporation's money elsewhere, such as increasing production or investing in capital expansion.
How do people on Wall Street view this corporate stock buyback activity? To them, it is an indication that a stock may be undervalued - at least in the eyes of corporate management, the people who should know the corporation best. A corporate stock buyback can lead to a flurry of interest in the corporation's stock. An example of a stock buyback is Harrison-based First Federal Bancshares of Arkansas Inc., which repurchased 383,000 shares of its stock last year.
Source: Arkansas Democrat-Gazette, January 31, 1999
1) What is stock buyback or repurchase?
2) Why would a corporation repurchase its own stock?
3) How are buybacks often viewed?
4) How would this view effect the company's stock?
Updated 2/23/99
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