The Organization of Production and the Production Function

In this section we shall first examine the organization of production and classify inputs
into various broad categories and then define the meaning and usefulness of the
production function in analyzing the firm’s production activity. The Organization of
Production :

Production refers to the transformation of inputs or resources into outputs of goods and
services. For example, if we want to produce wheat, we need land, fertilizer, water,
workers and some machinery. These are called inputs or factors of production. The
output is wheat. The output can also be service rather than a good. Examples of services
are education, medicine, banking, communication, transportation and many others. To be
noted is that “Production” refers to all of the activities involved in the production of
goods and services, from borrowing to setting up of expansion of production facilities, to
hiring workers, purchasing raw materials, running quality control, and so on, rather than
referring merely to the physical transformation of inputs into outputs of goods and
services. In a broader sense, activities adding value to the product are part of the
production process.

Inputs are the resources used in the production of goods and services. As a convenient
way to analysis, inputs are classified into labour, capital, land and entrepreneur. Each of
these broad categories, however, includes a great variety of basic input. For example
labour includes farmer, bus driver, assembly line worker, accountants, lawyers, doctors,
scientists and govt. officials. Capital consists of all the man made resources helping in the
production process. It includes machinery, building, inventory and others. In the same
manner land represent the natural resources for which human being has done nothing to
bring them about. It includes land, natural resources, minerals, rivers, sunlight and even
natural talent in a person. As far as the entrepreneurship is concerned there is a
controversy regarding its classification. Some economists call entrepreneurship as a
distinct factor of production, which is ultimate risk taker in the production process, while
other regard it a distinct type of labour only.

Inputs are also classified as fixed or variable. Fixed inputs are those that cannot be
readily changed during the time period under consideration, except perhaps at very great
expense. Examples of fixed inputs are the firm’s plant and specialized equipment; it takes
several years to build a new thermal power plant. On the other hand, variable inputs are
those that can be varied easily and on a very short notice. Examples of variable inputs are
most raw materials and unskilled labour.
 The time period during which at least one input is fixed is called the short run, while the
time period when all inputs are variable is called the long run. The length of the long run
(i.e. the time period required for all factors to be variable) depends on the industry. For
some, such as the setting up or expansion of dry-cleaning business, the long run may be a
few months or weeks. For others, such as construction of integrated iron steel plant, it
may be several years. In the short run, the firm can increase output only by using more of
the variable inputs (say labour and raw material) together with the fixed inputs (plant and
equipment) In the long run, the same increase in. output could very likely be obtained
more efficiently by also expanding the firm’s production facilities.

The production Functions :

A production function is an equation, table or graph showing the maximum output of a

commodity that a firm can produce per period of time with each set of inputs. Both inputs
and outputs are generally measured in physical rather than in monetary units. Technology
is assumed to remain constant during the period of the analysis.

The general equation of production function is

Q = f (a, b, c, d ……….. n, T )

Where Q represent the physical quantity of output per unit of time f, denotes functional
relationship.

a, b, c, d, represent the quantities of various inputs, per unit of time.

T refers to the prevailing state of technology or know how. The bar (-) is placed on T
Just to indicate that technology is assumed to be constant

The equation implies that the output or the quantity (Q) of the product depends on the
quantities, of a. b. c. d. n of the various inputs used with the given state of technology in
the production process per period of time.

For simplicity, economists assume that a firm produces only one type of output with only
two inputs, labour (L) [Entrepreneurship dubbed with labour] and capital (K) [land being
passive factor combined with capital]. Thus the simple production function is

Q = f (L; K) ……………… 1

Table 1, gives a hypothetical production function, which shows the output (the Qs) that a
firm can produce with various combinations of labour (L) and Capital (K). Table shows
that by using 1 unit of labour (IL) and I unit of capital (IK) the firm would produce 4
units of output (4Q).

With 2 Land IK, output is 10Q. With 3L and 4K the output is 38Q, and so on. Note that
labour and capital can be substituted for each other in production. For example 32Q can
be produced using 3L and 2K or with 2L and 4K. Input prices will determine which of
these combinations of labour and capital minimizes the firm’s cost.

The production Function with variable input :

In this Section, we present the theory of production when only one input is variable.
Thus, we are in the short run. We begin by defining the total, the average and the
marginal product of the variable input. We will then examine the law of variable
proportion and the meaning and importance of the stages of production.

Total, Average and Marginal Product :

By holding the quantity of an input constant and changing the quantity used of the other
input, we can derive the total product (TP) of the variable input. For example by holding
capital constant at 1 unit (i.e. with K = 1) and increasing the units of labour used from
zero to six units, we generate the total product of labour given in the tales 2 column (2).
Note that when no labour is used, total product or output is zero. When one unit of labour
(IL) is used, total product (TP) is 4. With 2L, TP= 10 with 3L,

TP = 15 and so on.

Table 2 Total, Marginal, and Average Product of labour; K=1 Labour output or
Marginal Product Average Product No. of workers Total Product TP of Labour (MP) of
Labour(AP)

(1) (2) (3) (4)

00--

144 4

2 10 6 5

3 15 5 5

4 18 3 4.5

5 18 0 3.6
6 15 -3 2.5

From the total product schedule we can derive the marginal and average product
schedules of the variable inputs. The Marginal Product of labour (MP L) is the change in
total product per unit of change in 1abour used, while the average product of labour (AP
L) equals total product divided by the quantity of labour used. That is

MPL = + TP / + L ------------------- 2

APL= TP/L ------------- 3

Column 3 in the table 2 gives the marginal product of labour (MPL). Since labour
increases by 1 unit at a time in column, the MPL in column 3 is obtained by subtracting
successive quantities of TP in column 2. For example TP increases from 0

to 4 units when the first unit of labour is used. Thus MPL = 4. For an increase in labour
from 1L to 2L, TP rises from 4 to 10, So that MPL = 5 and so on.

Column 4 of table 2 gives the APL. This equal TP (Column 2) divided by L (Column 1).
Thus with 1 unit of labour 1L, APL = 4, with 2L, APL = 5 and so on.

Plotting the total, marginal and average product of labour of table 2 gives the
corresponding product curves shown in figure-(I). Note that TP grows to 18 units with
4L, remains at 18 with 5 L, and then declines to 15 units with 6L.

In figure (2), we see that APL rises to 5 units and than declines. Since the marginal
product of labour refers to the change in total product, per unit change in labour used,
each value of the MPL is plotted half way between the quantities of labour used.

Fig. 2

The law of variable proportion and stages of production :

In order to show graphically the relationship between the total product, on the one hand
and the marginal and average products of labour, on the other hand, we assume that
labour time is continuously divisible (i.e. it can be hired for any part of the day). Then the
TP, MPL and APL become smooth curves as indicated in figure (3).

The MPL at a particular point on the TP curve at that point. From the figure3, we see
that the slope of the TP rises up to point G (the point of injection on the TP curve), is zero
at point J and negative there after. Thus, MPL rises up to point G, is zero at point J, and
negative thereafter.
 On the other hand, APL is given by the slope of a ray from the point of origin to the TP
curve. From Figure-3, we see that the slope of the TP curve rises upto point H and falls
thereafter but remain positive as long as TP is positive. In same manner, the APL rises
upto point H and falls after wards.

The point to note here is that at point H the slope of a ray from the origin to the TP
curves (or APL) is equal to the slope of the TP curve (or MPL). Thus APL = MPL at
point H (The highest point on the APL curve). Note APL rises as long as MPL is above it
and falls when MPL is below it.

The relationship between the MPL and APL curves in the bottom panel of figure-3 can
be used to define three stages of production for labour (variable input). The range from
the origin to the point where APL is maximum (Point H at 2.5L) is stage I of production
for labour. Stage II of production for labour extends from the point where the APL is
maximum (MPL is equal to APL) at the point to the point where the MPL is zero. (i.e.
from Point H to Point J at 4.5L). The range over which the MP L is negative (beyond
point J or with more than 4.5L) is stage III of production for labour.

The rational producer would not operate in stage III even if labour is available at free of
cost, because MP L is negative. This means that using less labour could produce a greater
output similarly one Would, not produce in stage I for labour because in this stage
Marginal product for labour is negative. As in relation to labour, capital is available much
more than required. Obviously by adding more labour output would go up more than
proportionately. Thus a rational producer will operate in stage II where the MP of both
the factors is positive but declining. The precise point within stage II at which rational
producer operates will depend on the prices of inputs and outputs.

Explanation of the Stages :

The operation of the law of variable proportion in three stages is attributed to two
fundamental characteristics of factors of production.

i. Indivisibility of certain fixed factors, and ii. Imperfect substitutability between factors.
Indivisibility of fixed factors implies that initially when smaller quantities of variable
factor inputs are employed alongwith a given set of factors, there is a bit of
disproportionality between the two sets of factor components. On technical grounds, thus,
fixed factors are not effectively exploited. For instance, a factor like machinery, being
lumpy, may remain grossly underutilized when only very few units of variable factor like
labour are used. But this is not the whole explanation behind the variable behaviour of the
production function. Remaining part of explanation is provided by the notion of
substitutability between factors of production. Substitutability means the extent to which
one factor can perform the task of other factor. For example food grain production can be
increased by using more dosage of fertilizer or more number of workers for better upkeep
of the farm. Output would increase in both the cases. But only to a limited extent same is
the case with man and machinery. Hence the law of variable proportion.

Assumption’s of the Law of variable proportion :

1. Only one factor is varied.

2. The scale of output is unchanged.

3. Technique of production does not change.

4. Units of factor input varied are homogeneous.

Significance of the Law : The business significance of the law of variable proportion is
obvious. A careful producer would not produce in stage I and III. Rationally, the ideal
combination off actor proportion (fixed plus variable inputs) will be when the average
product of labour is maximum.

Moreover universal occurrence of the low has forced the business to go all out for
invention of new technology so as to fend off the operation of the law of variable
proportion.
 Legal Structures for Business Organizations
Choosing the proper legal, organizational structure for your business is one of the most
important decisions you will make. While it may not have much impact on the day-to-
day operations of a small business, it can have a huge impact come tax time when you
want to borrow money or attract investors, or in the unfortunate event that you get taken
to court. While it is possible to change your structure at a later date, it can be a difficult
and expensive process. Better to make the right decision in the first place.

In the United States, you are not required to have an attorney prepare and file the
paperwork to create any of the structures listed below. However, depending on the size
and complexity of your business, you may want to consult with an attorney, and you
almost certainly should consult with your tax advisor regarding which structure is best
for your situation.

There are many choices and many factors to consider when setting up the structure of
your business. Many of the advantages of incorporating can be gained in other ways for
sole proprietors, such as purchasing liability insurance. Also, the paper legalities are
often outweighed by the real-world practicalities.

For example, while a corporation may shield the owners from personal liability for debts,
in your first 2-3 years in business, it's unlikely you'll even be able to get business credit
without personally co-signing as a guarantor, in which case you forfeit that protection.
Educate yourself, talk to a professional, and consider all your options carefully.

The following are the basic forms of business ownership in the United States. There are
variants from state to state, so be sure to check with your state's Secretary of State
Office for the exact details of your state.

Types of business entities

1. Sole proprietorship

This is the simplest form of business entity. With sole proprietorship, one person is
responsible for all of a company's profits and debts. A sole proprietorship is the easiest
to set up a business organization because there is no complex paperwork. A sole
 proprietorship is an unincorporated d business that is owned by one “individual”. Sole
Proprietorship does not require government approval. The business has no existence
apart from the owner. The owner is his or her own boss. He owns the business assets
and is is personally responsible for all debts of the business. Thus, all liabilities of the
business are the owner’s personal liability.

Advantages

 Easy to form — As mentioned, this is the easiest business structure to set up. Minimal
amounts of paperwork and red tape are associated with this type of business format.
 Least expensive to set-up — Costs vary depending upon where you live, but typically
all you'll need to pay is a nominal business license fee and maybe a business tax. Contact
your city or county government offices for their requirements.
 Ease of dissolution — Just as easy as setting up this type of business is ending it. As sole
owner, you can dissolve your business at any time. There is no legal waiting period or
formal paperwork involved.
 Sole recipient of profits (and losses) — You, as owner, receive all of the profits and
losses from the business. Profits and losses are reported directly on your individual
income tax return. In the event that you suffer business losses, you can deduct them
against any other income you may have to reduce your overall tax burden.

For example, Gina has decided to start up her own advertising firm on a part-time basis.
Her plan is to continue her job as Director of Advertising for her town's leading
newspaper until she is making enough money on her own to go it alone full-time. In the
first years of operating her part-time business, Gina is able to off-set her income from the
newspaper with the net losses from her part-time business to reduce the overall income
tax she must pay as an individual.

 Maximum authority — No need to worry about organizational maneuvering and

management manipulation here, you, and you alone, make all the business decisions.
 Tax-free asset withdrawal — You can shift funds in and out of your business accounts
or withdraw assets from the business with few tax or other legal ramifications.

Disadvantages

 Unlimited personal liability — This is by far the major disadvantage to this type of
business structure. As the sole proprietor, you are responsible for all debt incurred by the
business. Since the law recognizes you and the your business as one, your business AND
personal assets can be confiscated to satisfy your business obligations. After your
business assets are depleted, creditors can seek payment of the remainder of your
outstanding debt by coming after your personal assets such as your home and car.
 For instance, let's say your widget business has suffered a significant loss in market
share due to increased competition from the Pacific Rim. You've done everything in your
power to hold on, but you're left with no other alternative but to liquidate. Unfortunately,
after your "going out of business sale" you still have some outstanding debts, and these
creditors are unwilling to work out any kind of extended payment plan whatsoever to
satisfy the debt. Therefore, you are forced to sell your house and auction your belongings
to cover the debt. Both you and your business are ruined.

 Limited ability to raise capital — Quite often until your business grows and has gained
a good credit rating, you may find it difficult to get business loans which would otherwise
help your business grow. Bankers grant loans based on the strength of the
owner(s)/investor(s). Going solo may prolong the time it takes to raise capital for your
business.
 Growth of business limited to personal energies — There is only so much you can do
as owner, administrator, marketing representative, billing clerk, etc. on an daily basis.
New business might have to wait until your schedule allows you the time.
 Limited tax savings for fringe benefits — As a sole proprietor, you are not qualified to
receive the tax benefits that corporations get for offering certain fringe benefits such as
group-term life insurance benefits, long-term disability insurance coverage, and medical
insurance or medical expense reimbursements.
 Termination of business upon owner's death — Since the individual and business are a
single entity, the business ceases to exist once the owner dies.

2. Partnership: A partnership firm is an association of two or more persons to carry

on as co-owners a business or other undertaking for profit. A partnership is an entity
different from its partners. A partnership firm is set up by a partnership deed which is a
document made out by the partners and witnessed by a lawyer. The deed sets out the
legal relationship between partners e.g. how profits will be shared out, responsibilities
of partners etc. The property acquired by a partnership firm is property of partnership
and not the partners individually. The partners are jointly liable for debts of the
partnership. They are also jointly responsible for any legal liability against the
partnership. Generally criminal liability of one partner will not be imputed to other
partner(s).

for example, Larry's Limited, a wholesaler of farm equipment, was structured as a

general partnership with Larry, Harry, and Barry as co-owners. Because of the various
levels of experience and capital that each owner brought to the business, it was decided
that each partner's share of the business would directly relate to his contribution. Since
Larry had formerly run a similar company and was providing the majority of seed capital
for startup, it was decided that he would retain 50% share of the business while Harry and
Barry each would have 25%.
 Now, let's look at some of the major advantages and disadvantages of a partnership.

Advantages

 Easy to establish — Like the sole proprietorship, there is no formal paperwork or

waiting period. If you operate under a fictitious name, you'll need to file a "Certificate of
Conducting Business as Partners." It's recommended that you draw up an "Articles of
Partnership" agreement (discussed later) which will be an additional cost. More than
likely, you'll also need to obtain a business license to get you started.
 Synergistic — Draws upon financial and managerial strength of all of the partners.
Generally speaking, "Two heads are better than one" when you've recruited the right
partners. A good partnership will be one whose partners complement one another's skills
and expertise.
 Stronger growth potential — Your chances for acquiring a loan will increase when
there's more than one of you. Bankers look upon partnerships more favorably than sole
proprietorships. There are more than a single credit rating to research and if something
should happen to an owner, there are other owners that can step in and take over. Also,
with more than one owner, you'll be able to take advantage of additional talent and
expertise needed to grow your business.
 Direct rewards — Partners reap the benefits of their efforts by directly sharing in the
profits.
 Freedom from government control and special taxation — While a partnership must
file federal (Form 1065) and usually state information returns, it generally pays no
income tax. Instead the partners report each their share of income or loss on their own
individual income tax return.

Disadvantages

 Unlimited personal liability for the firm's debts — As is the case with the sole
proprietorship, you and each of your partners have personal liability for the debts, taxes
and other claims against the partnership.
 Business terminates upon death of a partner — Unless a partnership agreement
provides otherwise, a partnership usually terminates when any partner dies or withdraws
from the partnership.
 Any partner can commit the business to obligations — Any partner is considered an
agent for the partnership and can make decisions which might commit the partnership
beyond realistic expectations. Difficulty of disposing of partnership interest-unless
specifically arranged for in the written agreement.

Partnership Agreement
 Although not legally required, a Partnership Agreement, also known as Articles of
Partnership, are often drawn up to outline the contribution of each of the partners into the
business. These articles determine the roles of the partners in the business relationship,
whether financial, material, or managerial. Following are some you might want to include
in your "written articles of partnership" to protect the best interest of your partnership.

 Capitalization — This provides for the initial capitalization of the business, turning what
is usually a moral obligation into a legal one. A business cannot promote its ideas without
adequate funds to back them up. Since there is no way to adequately predict the future
financial needs of the business, this is a one-shot provision rather than a continuing
obligation.
 Authority/Dispute Resolution — This provides for arbitration of disputes among the
partners. Arbitration is a much simpler and less expensive method of settling disputes
between parties, as there is no outside litigation required. Because this agreement is
written by and for its own participants, and are, therefore, sometimes viewed with
skepticism by the courts, the participants should decide whether certain or all disputes
concerning the business be arbitrated.
 Management — The method of management for the business should also be covered by
the partnership agreement. The agreement may limit or enhance the normal powers of
partners. This agreement may also provide for non-competition between the owners and
the business. as well as provide the method for computing salaries and bonuses. Also
included here is a provision for continuing the business in the event one of the owners
becomes so disabled that he or she is unable to help manage the business.
 Sale of Partnership Interest — This is one of the most important provisions in the
agreement. It is a restriction on the participant's right to sell their interest to third parties.
The partners chose each other because of their personal qualities, therefore, permitting
one to sell his or her share to a third party would defeat the intent of both partners. On the
other hand, it is unfair to force a partner to continue in a business. The agreement should
provide for a method by which the dissatisfied partner can dispose of his or her interest in
the business without forcing the other partner to take in a stranger. One method is a right
for the business or other partner to buy the interest before it is offered to outsiders. The
provision must cover the method of determining the price and the terms of payment for
the dissatisfied owner's interest.
 Death of Partner — In the event that one of the partners dies or becomes permanently
disabled, this provides for a mandatory buy-out of the dead partner's interest in the
business. Failure to provide for these contingencies could lead to tremendous difficulties
for the business. In the absence of such an agreement, the death of a partner automatically
dissolves partnership.

Limited Partnerships

In a limited partnership, the law provides for a special kind of arrangement whereby
certain partners have limited personal liability. The limited partnership is more regulated
than the more common general partnership, but it allows investors who will not be
actively involved in the partnership's operations to become partners without being
exposed to unlimited liabilities of the business' debts if it should go out of business.

A limited partner risks only his or her investment but in exchange for this must allow one
or more general partners to exercise control over the business. In fact, if the limited
partner becomes involved in the operations of the partnership, he or she may lose his or
her protected status as a limited partner. The general partners in a limited partnership are
fully liable for the debts of the partnership.

There are state laws requiring certain formalities in a limited partnership that are not
required in other partnerships. To qualify for their special status, limited partnerships
must usually file a Certificate of Limited Partnership with the secretary of state or other
state and county offices. Establishing a limited partnership also requires a written
partnership agreement.

3. Corporation or company: A corporation is an association of individuals, known as

stockholders, created as a business entity. In order to form a corporation, a number of
legal formalities have to be fulfilled. A corporation does not dissolve upon death of
one or more owners. Companies are separate in law from the individual owners
(shareholders) of the business. A company is a separate legal entity and bears its own
name and seal. It can own property, incur debts and borrow money. Shareholders
cannot be held accountable for the company's acts. The Companies Act, 1956,
regulates a company's affairs and protects the interests of minority shareholders.

4. Limited Liability Company: A LLC is a flexible form of enterprise that blends

elements of partnership and corporate structures. It is an association of individuals,
known as members, that share characteristics of both the individual and corporate
identities. It may be a sole proprietorship, a partnership or a corporation. Legal
formality is similar to that of a company. LLC provides limited liability to its owners
against the actions of the business or other members of business.
Limited Partnership

The basic structure and tax implications are the same as for a general
partnership, but the limited partnership allows for one or more limited partners
("silent partners") to own a portion of the business, but not participate in the
management of the business. The partnership must also have a general partner
who has personal liability for all liabilities of the partnership. This structure allows
 a partnership to have outside investors without subjecting them to the liabilities of
the business.

Limited Liability Partnership (LLP)

The LLP is a fairly new structure that appeared as a result of demand from
attorney and accounting firms to be able to limit the liability between partners
(attorney and accounting firms were at one time not allowed to incorporate,
though they are now). An LLP is taxed like a partnership but limits the liabilities of
all partners, much like an LLC. LLP laws vary significantly from state to state.

For example, California and New York only allow this form for attorney and
accounting firms. In many other states, partners in an LLP only have a "limited
shield," and are not afforded the same protection they would enjoy in an LLC or
corporation. These restrictions make the LLP generally only a good choice for
attorney and accounting firms, at least in the states with the limited shield law.
Check with your Secretary of State for the specifics in your state.

Limited Liability Company (LLC)

An LLC is a hybrid of a corporation and a partnership and is rapidly becoming the

most popular structure for small businesses due to its flexibility and its low cost to
create and maintain, while still offering most of the advantages of a corporation.
The ownership percentages, profit, and loss distributions, and voting powers of
each member are determined by the LLC Articles of Organization, rather than by
stock ownership.

An LLC can choose to be taxed as a partnership or S Corporation with profits

and losses flowing through to the owners’ tax returns, or taxed as a C
Corporation, filing its own return. The owners and any officers and directors are
protected from the liabilities of the company, as in a corporation. An LLC is
generally subject to the franchise tax, though this varies from state to state.

Corporation ("C Corporation")

Advantages

 Liability is limited to the amount owners have paid for their share of
stock. Generally, stockholders in a corporation are not personally liable for claims
against the corporation and are, therefore, only liable for their personal investment.
 Life of the business is unaffected by death or transfer of shares by and of its
owners. The business will continue as a corporation indefinitely. Creditors, suppliers,
 and customers often prefer to deal with an incorporated business because of this
continuity.
 Easier to raise capital in larger amounts and from many investors.
 Delegated authority. Centralized control is secured when owners delegate authority to
hired managers.
 Draws upon financial and managerial strength (expertise) of all of the owners.

Disadvantages

 More expensive to form. There are many forms to file, such as articles of incorporation
charters, permits. The legal fees to file these forms can be substantial.
 Power limited by charter and various laws. Once established, the charter dictates all
decisions, activities, etc. of the business.
 Extensive record keeping. Because of the various forms involved with a corporation and
continuous filing schedules with the government, both state and federal, ongoing record
keeping is a must.
 Manipulation. Minority stockholders are sometimes exploited.
 Double taxation. Taxes on profits of the business and taxes on dividends are paid to the
owners. The last item listed under Disadvantages, Double taxation, can be avoided by
filing as an "S" Corporation.

4. Corporation

The law regards a corporation as an entity separate from its owners. It has its own legal
rights, independent of its owners – it can sue, be sued, own and sell property, and sell
the rights of ownership in the form of stocks.

There are several types of corporations, including C corporations, S corporations, B

corporations, closed corporations and nonprofit corporations.
 C corporations, owned by shareholders, are taxed as separate entities.
 S corporations avoid this double taxation, much like partnerships or LLCs. Owners also have limited
liability protection.
 B corporations, otherwise known as benefit corporations, are for-profit entities structured to make a
positive impact on society.
 Closed corporations, typically run by a few shareholders, are not publicly traded and benefit from
limited liability protection.
 Nonprofit corporations exist to help others in some way and are rewarded by tax exemption.

5. Cooperative

A cooperative is owned by the same people it serves. Its offerings benefit the
company's members, who vote on the organization's mission and direction.
Factors to consider

For new businesses that could fall into two or more of these categories, it's not always
easy to decide which one to choose. You need to consider your startup's financial
needs, risk and ability to grow. It can be difficult to switch your legal structure after
you've registered your business, so choosing correctly at the start is crucial.

Flexibility

You'll want to ask yourself where your company is headed, and if your structure allows
for it. Turn to your business plan to align your goals with the proper structure. Your
entity should support the possibility for growth and change, not hold it back from its
potential.
Complexity

When it comes to startup and operational complexity, there is nothing simpler than a
sole proprietorship. You simply register your name, start doing business, report the
profits and pay taxes on it as personal income. However, it can be difficult to procure
outside funding. Partnerships, on the other hand, require a signed agreement to define
roles and percentages of profits. Corporations and LLCs have various reporting
requirements with the state and federal governments.

Liability

A corporation carries the least amount of personal liability, since the law holds that it is
its own entity. This means that creditors and customers can sue the corporation, but
they cannot gain access to any personal assets of the officers or shareholders. An LLC
offers the same protection, but with the tax benefits of a sole proprietorship.
Partnerships share the liability between the partners as defined by their partnership
agreement.

Taxes

An owner of an LLC pays taxes just as a sole proprietor does: All profit is considered
personal income and taxed accordingly at the end of the year.

"As a small business owner, you want to avoid double taxation in the early stages," said
Jennifer Friedman, chief marketing expert at Expertly.com. "The LLC structure prevents
that, and makes sure you're not taxed as a company and as an individual."
Individuals in a partnership also claim their share of the profits as personal income.
Your accountant may suggest quarterly or biannual advance payments to minimize the
end effect on your return.

A corporation files its own tax returns each year, paying taxes on profits after expenses,
including payroll. If you pay yourself from the corporation, you will pay personal
taxes, such as for Social Security and Medicare, on your personal return for what you
were paid throughout the year.

Control

If it is important for you to have sole or primary control of the business and its activities,
a sole proprietorship or an LLC might be the best choice for you. You can negotiate
such control in a partnership agreement as well.

A corporation is constructed to have a board of directors that makes the major decisions
to guide the company. A single person can control a corporation, especially at its
inception, but as it grows, so does the need to operate it as a board-directed entity.
Even for a small corporation, the rules intended for larger organizations – such as
keeping notes of every major decision that affects the company – still apply.

Capital investment

If you need to obtain outside funding sources, like investor or venture capital and bank
loans, you may be better off establishing a corporation, which has an easier time
obtaining outside funding than does a sole proprietorship. Corporations can sell shares
of stock, securing additional funding for growth, while sole proprietors can only obtain
funds through their personal accounts, using their personal credit or taking on partners.
An LLC can face similar struggles, although, as its own entity, it is not always necessary
for the owner to use their personal credit or assets.

Licenses, permits and regulations

In addition to legally registering your business entity, you may need specific licenses
and permits to operate. Depending on the type of business and its activities, it may
need to be licensed at the local, state and federal levels.

"States have different requirements for different business structures," Friedman said.
"Depending on where you set up, there could be different requirements at the municipal
level as well. As you choose your structure, understand the state and industry you're in.
It's not a 'one size fits all,' and businesses may not be aware of what's applicable to
them."
Presentation Topics MBA (Non Bussines) 1st Semester

Group Topic Remarks

What is Business Economics?

1 Macro and Microeconomic influences on the firm
Difference between Economics and Business Economics
Organization for production: practical and theoretical perspectives
Legal structure

The demand curve

2 The market demand curve
Consumer surplus
Determinants of demand
Elasticity
Criticisms of demand theory

Consumer preferences
3 Indifference curve analysis
Goods and their attributes

The Production function

4 Short-run production
Shot-run cost
Long-run cost
Economies of scale
Profit Maximization

NOTE:

In order to participate in presentation, late arrivals will be marked absent; although they may like
to attend the class. The best policy to avoid such a situation is never be late.

Students should demonstrate that they are able to work effectively in diverse environment and
team work.
Source of data and Refrences should be mentioned.

Presentation will held on 24-11-2019. Make sure your presence otherwise 5 points will be deducted.

Date:20-11-2019