Ch. 8: Business Organizations

1. Ch. 8: Business Organizations

2. Business Brainstorm • Think of your business, would you want to own it by yourself, or with others? • What are the pros/cons of each option? • If shared ownership, in what structure?

3. Section 1: Sole Proprietorships • Small, family-owned businesses have long served as the foundation to America’s economy.

4. Business Organization • A business organization is any establishment formed to carry on commercial activity.

5. Liability vs. Rewards • Liability is the legal obligation to pay bills and take responsibility for something. • Rewards are the benefits/profits received from businesses. • We will categorize businesses according to who is liable/rewarded for them.

6. Sole Proprietorship • A sole proprietorship is a business owned and managed by a single individual.

7. Sole Proprietorship • Owners of sole proprietorships hold all of the liability & benefits of the business. • A majority of the businesses in America (75%) • Account for a minority of the total sales (6%)

8. Start-Up • Sole proprietorships are relatively easy to start. • Most require minimal legal requirements.

9. Legal Requirements • Business License: Authorization from local government • Site Permit: certificate of occupancy for a building (if not based at home) • Name: businesses must register their name • Zoning Laws: Cities and towns designate separate areas for different uses.

10. Advantages and Disadvantages • Sole responsibility: • Requires a high degree of initiative and energy • Receive all rewards (profits) • Responsible for all liability (potential loss)

11. Section 2: Partnerships • A partnership is any business organization owned by two or more people who divide ownership (responsibility, and profit/liability)

12. General Partnership • Partners in general partnership share equally in both responsibility and liability.

13. Limited Partnership • Only one partner is required to have unlimited personal liability. • One or more partners may be limited. • They do not actively manage the business. • Can only lose the amount of money the invested.

14. Limited Liability Partnership (LLP) • Recognized by many states, all partners have limited liability in the event of extreme mistakes or problems. • Attorneys, physicians, dentists, accountants

15. Advantages of Partnership • Relative ease of start-up • Shared decision making and responsibility • Specialization: each partner may have different strengths • Larger pools of capital/assets

16. Disadvantages of Partnerships • Unlimited liability • Unless an LLP, at least one partner has unlimited liability • Potential for conflict • Minority owner can get run over

17. Section 3: Corporations, Mergers, and Multinationals • Increasingly, American business is controlled by large, multinational corporations.

18. Corporations • A corporation is a legal entity owned by individual stockholders who face limited liability for the firm’s debt.

19. Stock • Corporations are owned by anyone with stock in the company. • Stock is a certificate of ownership in a company.

20. Private Corporations (closely held) • Some corporations are incorporated, but only issue stock to select people. • Stock is rarely traded and is often held within families.

21. Publicly Trade Corporations • Publicly held corporations are traded on the open market (Ex: New York Stock Exchange). • Anyone can buy shares in a publically traded company.

22. Advantages of Incorporation • Limited liability • Easily transferable ownership • Ability to attract large amounts of capital • Long life

23. Disadvantages of Incorporation • Expense and difficulty of start-up • Double taxation • Potential loss of control by founders • More requirements and regulations

24. Horizontal Mergers • Horizontal mergers are when two companies competing in the same market merge together. • Chrysler + Daimler-Benz = DaimlerChrysler

25. Vertical Merger • Vertical mergers combine two or more firms involved in different stages of producing the same good. • Owning the natural resource mining, transportation, and manufacturing of the a product.

26. Conglomerates • Conglomerates merge more than three businesses that make unrelated products. • Kraft Foods • Time Warner • Coca-Cola

27. Multinational Conglomerates • Multinational conglomerates operate and sell all of the world. • Coca Cola CEO: "We are not an American company. We are an international company that happens to be based in Atlanta, Georgia."

28. Section 4: Other Organizations • Franchises, nonprofit organizations, and cooperatives are other forms of business structures.

29. Business Franchise • A franchise is a semi-independent business that pays fees to a parent company in exchange for using their brand.

30. Advantages to Franchises • Management training and support • Standardized quality • National advertising/brand recognition • Financial assistance • Centralized buying power

31. Disadvantages of Franchises • Franchising fees and royalties • Strict operating standards • Purchasing restrictions • Limited product line • Summary: Limited freedom

32. Cooperative Organizations • A cooperative is a business owned and operated by a group of individuals for shared benefit. • Example: Farm cooperative

33. Nonprofit Organizations • Nonprofits operate like businesses, but do not operate to generate a profit. • Education, hospitals, social work agencies, Churches, YMCAs, museums, etc.

34. Professional and Business Organizations • Professional organizations are resources for a given occupation • National Education Association, American Medical Association • Business Associations are resources for local businesses • Better Business Bureau