Fascinating economy

American Media

People get the information they need to make decisions primarily from the media. People watch TV, browse the Internet, read newspapers and magazines, and listen to the radio. What they see, read, and hear affects how they think and choose.

There are thousands of media sources for people to choose from, but a large number are owned by a few large companies. These companies are known as media conglomerates. Their dominance of the media industry creates a market structure that closely resembles an oligopoly because a few large companies control nearly all the media industry.

Global Media Giants

The centralized global media system is a very recent development. Until the 1980s, the basic broadcasting systems and newspaper industries were domestically owned and regulated. Starting in the 1980s, the U.S. government, along with its Federal Communications Commission (FCC), began to deregulate, or remove the legal restrictions that had been in place on media and communication systems.

With the rise of satellite and digital technologies, deregulation resulted in the success of global media giants. There are only a few global media giants today.

The Internet Media Revolution

The Internet operates differently from other forms of media. Because it is relatively easy and inexpensive to build an Internet site, it is easy for many different producers to have an Internet presence.

Millions of people contribute to the information available on the Internet. The popularity of blogging, instant messaging, and social media sites means that more and more people get their information and entertainment from sources that are not controlled by large media companies.

Despite the possibilities of the Internet, many of the most popular websites today belong to large media conglomerates. While it may always remain inexpensive to put information on the Internet, the most popular websites will likely come from large global corporations.

The Business of Media Review

Media companies are unique types of producers. They create content for people to consume, but these consumers are themselves something that is sold to other producers who buy advertisements.

Media companies play an important role in the game of economics. They provide information that affects the decisions of consumers, and they provide advertising services that nearly every producer needs to purchase.

People start new businesses every day. It requires a lot of planning and organizing, not to mention hard work and determination. It also takes money. Potential business owners can use their own money. They can borrow it from the bank, take on a business partner, or have a third party, sometimes called a venture capitalist, invest what it takes to open for business.

There are many kinds of businesses. Some businesses only have one owner. Others have multiple partners who own the company together. In the end, all businesses try to accomplish the same goals: providing goods and services to satisfy the needs and wants of consumers.

The first thing any aspiring business owner has to do is decide which goods or services to offer for sale. The variety of goods and services available from businesses is wide, and new entrepreneurs are always trying to come up with new ideas about what to sell and how to sell it.

Sole Proprietorships

One way to start a business is to operate alone, with little or no help from anyone else. This kind of business is called a sole proprietorship. The owner of a sole proprietorship is completely in charge of the operation of the business. If there are other employees, the owner is the boss. The owner receives all the profits but also bears all the financial risks (that is, the losses).

Many entrepreneurs prefer to open a new business as a sole proprietorship. It is the most common type of business, and it is also the easiest type to build. Almost all small businesses are sole proprietorships. Many medium-sized businesses and large businesses begin as sole proprietorships but grow with success and add partners and investors.

The Risks and Rewards of a Sole Proprietorship

With a sole proprietorship, a business is much like an extension of the business owners. It has no separate existence.

There are many benefits to a sole proprietorship. For instance, business owners can make their own decisions without having to consult other people.

Another advantage is that business owner pay personal income taxes, not corporate taxes, on profits. This makes accounting much simpler. And, of course, business owners also get to keep all the profits.

But there are also downsides. A sole proprietor has unlimited liability. That means that the business owner is responsible for all the debts and financial losses of the business. If the business fails, the owner can lose all assets. This includes not just business assets like equipment and supplies, but also personal assets like real estate and savings.

Sole proprietors also need to have enough money to start the business in the first place. Some potential business owners borrow money from a bank to start a company, but this is risky because of unlimited liability. The bank can collect personal assets if an owner defaults on a small-business loan.

Partnerships

Another way to organize a business is to form a partnership with others. A partnership is a contract in which business partners agree to operate the company together by combining their money, knowledge, and time. Partners share profits based on their contributions.

There are two main ways of organizing a business partnership: as a general partnership and as a limited partnership.

A general partnership is much like a sole proprietorship except that each partner is fully responsible for the debts of the business, including debts incurred by the other partners. Every partner has an equal voice in running the business, and the partners have to consult one another to make decisions related to their business.

In a limited partnership, on the other hand, each partner has limited liability. The most each partner can lose is the amount he or she has contributed to the partnership. In a limited partnership, the business is managed by one or more of the partners, while the other partners are investors who rarely take part in any business decisions.

Failed Partnerships

Two partners decide to start a restaurant. Each contributes $10,000 to fix up an old building, hire servers and cooks, and buy supplies. After the first year, the business is failing. The restaurant is $40,000 in debt by the time it closes its doors. Under a general partnership, each partner is fully responsible for this debt. If one partner only has $5,000 in her savings account while the other partner has $50,000, the partner with more savings can be made to pay $35,000 of the debt.

If this same restaurant had been a limited partnership, each partner would be responsible for only 50% of the debt. So, the richer partner only has to pay back $20,000 of that $40,000. If the other partner can only pay $5,000, some of the debt might go unpaid. This can happen in a limited partnership. Investors generally prefer limited partnerships so that they are not held fully responsible if the business incurs too much debt.

Pros and Cons of Partnerships

There are many advantages to a business partnership. First of all, partnerships are fairly easy to establish. Also, partnerships typically make it easier to raise money that can be invested in the business. That is why partnerships are the preferred type of business for some small companies. Instead of going to the bank and borrowing money, business owners can ask people to be partners and invest their money. Another advantage to a partnership is that there are rarely any extra taxes to file, just personal income taxes on any profit made.

Being held individually responsible for all the company’s debts is one of the major disadvantages to a general partnership. General partnerships can also be difficult to operate because partners need to work together and agree on business decisions. What might be a simple decision with just one person in charge can become much more complicated with two or more people trying to agree. This difficulty is lessened within a limited partnership because business decisions are made only by the managing partner. Still, the lack of input into business decisions by the «silent» partners takes away control, leaving their investment in the hands of the managing partners.

Corporations

Another type of business is a corporation. Corporations are like partnerships in that they are funded and operated by more than one person. But a corporation has many people who invest, and few investors have as much direct control or responsibility in the business operations as they would in a partnership.

The investors in a corporation are not partners but stockholders. A stockholder is someone who owns a share in the corporation in the form of stock. Unlike partners, stockholders do not make the business decisions themselves, unless they own a majority of all available stocks. Usually, a corporation is run by a board of directors, who are elected by stockholders. The board of directors is responsible for managing the business and making the daily decisions required to operate it.

Stockholders

When compared to forming a business partnership, investing in a corporation is much easier and safer. Stockholders do not need to help make day-to-day business decisions the way partners do. Those business decisions are left up to the board of directors. If stockholders do not agree with the decisions made by the board, they can vote for new members or simply sell their stock and invest in another corporation.

Because stockholders own the shares of a corporation, many businesses in the United States face a situation known as «double taxation.» The government taxes both corporate profits as well as the personal income of all the shareholders when they receive dividends or distributions of corporate profits.

Investors who buy stock in profitable corporations usually receive dividends. A dividend is a portion of the company’s profit paid on each share of stock. Investors who own a lot of stock receive large dividend payments.

Stockholders are also protected if a corporation fails. Unlike sole proprietors or partners, stockholders are not responsible for any of the corporation’s debts.

Benefits of Being a Stockholder

A corporation is a legal entity. It has rights to buy, sell, trade, and own property. It must also pay corporate taxes. A corporation has many advantages for its owners and stockholders. One of those advantages is limited liability. As a stockholder, you cannot lose more than you initially invest.

When a company is doing well and paying high dividends, there are always other investors who want to buy that company’s stock. This drives the price up. Stockholders can earn money in two ways: through dividends and by selling their shares for more than the original purchase price.

Still, investing by purchasing stock in a corporation can be risky. People who invest in stocks often lose money because they choose the wrong company.