Economics Principles and Practices © 2012 Georgia

Chapter 3: Business Organizations

Chapter Overviews

Section 1: Forms of Business Organization

Most businesses operate in search of profits. Others are organized and operate like a business, although profits are not their primary concern. There are three main forms of business organization. The first is the sole proprietorship, which is a business owned and operated by one person. The second is the partnership, which is a business jointly owned by two or more persons. The third is the corporation, which is recognized as a separate legal entity having all the rights of an individual. The proprietorship is the most common and most profitable form of business organization. The corporation is the largest and most visible.

Section 2: Business Growth and Expansion

Businesses can expand in many different ways. One way is through reinvesting funds internally, which can also be paid out to the owners in the form of dividends. Another way is through combinations called mergers. Two kinds of mergers, horizontal mergers and vertical mergers, take place for a number of reasons. Some firms merge to become bigger or more efficient. Others merge to eliminate their rivals or to change corporate identity. Some mergers may result in a conglomerate, or even a multinational if the business has manufacturing or service operations in a number of different countries.

Section 3: Nonprofit Organizations

Economic organizations, such as schools, medical care facilities, and churches, operate like a business, but on a not-for-profit basis to further the benefit of a cause or the welfare of the members. One example is the cooperative, or co-op, a voluntary association formed to carry on some kind of economic activity or to benefit its owners. The labor union is another example. Even government can play a direct role in the economy when it produces goods and services. Also, the government plays an indirect role when it grants money in the form of unemployment payments, Social Security, or welfare in order to give some groups purchasing power that they would not otherwise have. In each case, the benefits of a government action or policy should outweigh its costs.