Business Organizations

1. Business Organizations Mr. marinello * Chippewa Valley * Fall 2012

2. Franchises • A business that licenses the right to sell its products in a particular area. • Franchisee: A semi-independent business that buys the right to own a franchise. • Fast-food most common. Also: hotels, rental cars… • Advantages of a Franchise • Level of independence not found as worker in a store • As the franchisee, they would provide good training because the success directly impacts them. • Provide a proven product. • Low cost on décor and corporate would pay for advertising.

3. Disadvantages of a Franchise • Invest your own money without assurance of success • Share $ with franchise • Not complete control • Follow franchise operating instructions, can only buy materials that are approved by franchiser • Cooperative • A business operated for the shared benefit of the owners, who also are the customers. Also called a co-op.

4. Nonprofit • Exist to promote the common interests of their members or to benefit society in some way. • Run like a corporation, but are not required to pay taxes because they do not generate profits and they serve society. • Business organizations, trade associations, labor unions, museums: American Red Cross, American Bar Association, Michigan Educational Association.

5. Corporations • Abusiness owned by stockholders • Make up 20% of business in US • Produce most of country’s goods/services • Employs the majority of American workers • People acquire ownership rights of a company through the purchase of a stock. • Apple sells a million shares and you buy 10,000 shares, you would own 1% of Apple. • If the company ran into trouble you would not have to pay for the debt, you would only lose your initial investment. • If the stock does well and earns a profit, you will get a payment called a dividend.

6. Corporations • Public v. Private • Public company: a corporation that issues stocks that can be freely bought and sold. • Private company: a corporation that has control over who can buy or sell the stock. • Design of Corporation • Stockholders elect the board of directors. • Board of directors hire corporate officers, like the president and VP in charge of sales, finance, production… • They are in charge of making sure things run smoothly. • Corporate officers then higher regional managers  district managers  store managers assistant managers regular employees.

7. Advantages of Corporations • Access to Resources • Better opportunities to obtain more money. • Easier to get a bank loan • Sell stock to get more $ • Professional managers • Higher people who have experience in sales, finance … Their experience can lead to higher profits. • Limited Liability • Everyone is only liable for the funds they have put into the stock. • Unlimited Life • If the owners, stockholders die or end their relationship with the company, it will continue without them.

8. Disadvantages of Corporations • Start-up Cost and Effort • The process is time-consuming, difficult, and expensive. • Heavy Regulation • A lot of government regulation • Prepare annual reports for Securities and Exchange Commission. & send out reports to stockholders • Double Taxation • Sometimes if you are both an officer of a company and a stockholder you might have to pay taxes on both. • Loss of Control • As the original owners of the company it can be difficult to turn over control to other people.

9. Business Consolidation • Merger • Businesses merge together for many reasons: (a) increase efficiency, (b) get a new identity, (c) keep rivals out, (d) diversify product line. • Two main types of Mergers • Horizontal merger: combining 2 or more companies that produce the same or similar products • Vertical merger: combining companies involved in different steps of production or marketing of a product/service.

10. Other types of Businesses • Conglomerate • A business that is made of several companies. Each one produces an unrelated good/service. • Multinational Corporation • A large corporation with branches in several countries.