Business Organizations

1. Business Organizations Chapter 3http://www.youtube.com/watch?v=pPVkG9krOMI

2. Sole Proprietorship • A business that is owned and managed by one individual who receives all the profits and bears all the losses. • Most common form of business organization BUT third in sales, & profits.

3. Benefits Easy to start and go out of business Control over profits and business operations Pride of ownership Personal freedom Lower taxes – no corporate taxes Easy to manage/flexible Costs Unlimited liability – owner responsible for all losses and debts Difficulty in raising financial capital – banks don’t like to lend to small business Management knowledge may be limited Size and efficiency Difficult to attract qualified employees Limited Life Sole Proprietorship

4. Partnership • A business that is owned and managed by two or more individuals who receive all the profits and bear all the losses. • Least most common form of BO Third, 2nd in sales & profit • 2 types: • General- • All partners are responsible • Limited ($ilent partner)- • One partner is NOT active in daily business but gave money to start the business

5. Benefits Easier to raise financial capital Partners may combine managerial skills Personal satisfaction Lower taxes – no corporate income tax Ease of establishment Ease of efficiency (more) Easier to attract qualified workers Costs Unlimited liability Shared profits Possible conflicts between partners Possible instability after death of a partner Limited life Partnership

6. Corporation • A business that is owned and operated by stockholders and has rights and responsibilities as if it were a person; Organized and recognized by law • Second most common form of BO, first in sales & profits!

7. Benefits Limited liability- corporation NOT owners is responsible for debt Greater financial capital – stocks, bonds Unlimited life Specialized management Ease of transferring ownership – stockhttp://www.youtube.com/watch?v=5BsOF1uJZnQ&feature=related Costs Increased taxation Difficulty in starting May be larger, more bureaucratic than other forms of business Increased governmental control Corporation

8. Expansion of business • 2 ways: • Reinvestment- by putting some of its profits back into acquiring more of the factors of production to produce more and therefore sell more and even bigger profits! • Merger – a combination of two or more businesses to form a single firm • http://www.youtube.com/watch?v=21aLv9KluQs

9. Reasons for merging • Efficiency • Standardize procedures; volume purchases; effective use of advertising • Eliminate rivals • Royal Caribbean Cruises acquired Celebrity Cruise Lines in 1997 and doubled in size • * may be blocked by FTC – Staples not allowed to acquire Office Depot • Lose corporate identity • ValuJet merged with AirWays to form Airtran Holdings Corp. after 1996 Everglades crash killing 110 peoplehttp://www.youtube.com/watch?v=hi76RCghZVM&feature=related

10. Types of Mergers • Horizontal • 2 or more firms produce the same kind of product join forces • Ex: merger of two banks (Wachovia and First Union) http://www.youtube.com/watch?NR=1&v=XmOFbk1aVbw • Vertical • Firms involved in different steps of manufacturing/marketing come together • Ex: merger of a steel company and a car manufacturer • http://www.youtube.com/watch?v=KuRWcgwXcdA&feature=related

11. Conglomerates • Firm that has at least 4 businesses, each making unrelated products, none of which is responsible for a majority of sales • Formed out of corporations that become so large through mergers and acquisitions • Main reason: Diversification – “don’t put all your eggs in one basket” philosophy • Ex: KFC fast-food restaurant; fruit and vege. processor Del Monte and Heublin – wine producer and distributor • http://www.youtube.com/watch?v=6DslMsrbAAA

12. Multinationals • Corporation that has manufacturing or service operations in a number of different countries • Tax Status: Likely to pay taxes in each country it has operations in

13. Multinationals Cont. • Strengths • Help spread new technology worldwide • Generate new jobs in areas where jobs are needed • Produce tax revenues for host country • Weaknesses • b/c large and powerful, influence political life in host nation • May exploit the economy of host nation by paying workers low wages, by exporting scarce natural resources, or by adversely interfering with the development of local business • Takes away jobs at home

14. Government • Direct Role – produces and distributes goods and services to people • National defense • Police, fire, schools, courts, etc. • Indirect Role – acts as an umpire to make sure the market economy operates by the rules • Public utilities – no competition = gov. regulation • Financial aid • Social Security

15. Cooperatives • Voluntary association of people formed to carry on some kind of economic activity that will benefit its members due to lack of it in their particular area: • Consumer • Service • Producer

16. Non-Profit Organization • Work to make the best use of scarce resources. • Non profit organizations do not seek financial gain for their members

17. Consumer Cooperative • Voluntary association that buys bulk amounts of goods on behalf of its members • Wants to provide members lower prices

18. Service Cooperative • Deals with services rather than goods • Offer members insurance, credit, and other services

19. Producer Cooperative • Helps members sell their products • Farmers

20. Labor Unions • Organization formed to work for its members’ interests in various employment matters • Negotiate with management for better pay, working conditions, vacation, etc.

21. Professional Associations • Group of people in a specialized occupation that works to improve the working conditions, skill levels, and public perceptions of the profession • Teachers/Professors • Lawyers

22. Business Associations • Organize to promote their collective interest • Chamber of Commerce – (most cities and towns have) promotes the welfare of its members and the community • Better Business Bureau – help to protect the consumer, provides information on companies