Types of Business Firms

Allocation of Products And Resources

The pure market economy, without any government control whatsoever, allocates (distributes) products and resources to get maximum profits. The quest for profit, or the profit motive as it is often called, is the force that drives the free enterprise economic system.

As to the command economy, it allows the government to act as a dictator.

In a mixed economy three quarters of production is carried out by the private sector through the market, though subject to varying degrees of government control. For the other quarter the government is directly responsible through the public sector. Thus the government influences the allocation of the goods and services produced.

(599 t.un.)

Microeconomics studies particular firms, households, banks, etc. Business organizations may be considered as firms or companies. They produce goods and render services. They also rent or purchase buildings, land, equipment. They market and advertise their products. They deal with government and courts, as well as with banks, insurance companies.

From the legal point of view there are three basic kids of business firms: 1) proprietorships, 2)partnerships and 3) corporations. A proprietor is responsible for all personal and business debts and losses, he provides the capital and executes the total management. To start the business of this kind it is necessary to obtain licenses required by the law.

The proprietorship form has several advantages, such as: simplicity of organization, freedom to make all decisions, tax advantages, etc. Among disadvantages the following are worth mentioning: possible lack of ability and experience, difficulty in raising capital.

Partnerships are firms owned jointly by two or more persons who are co-owners of business. Partnerships are based on agreement, which should cover all areas of possible disagreement among the partners. Advantages of the partnership may be combined talents, judgements, skills as well as larger capital and tax advantages. Disadvantages of this form are divided authority, danger of disagreement, etc.

Corporation is a firm owned by a group of people, called stockholders, and given rights, privileges and liabilities by law. Advantages of the corporation is a variety of skills, abilities and ideas, ease of expansion. Disadvantages of this form of ownership may be as follows: government regulation, profit sharing, taxes.

Corporation has the right to conduct business as if it were one person. (1520 t.un.)

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