Business and Labor

1. Business and Labor Chapter 22

2. Types of Businesses • Sole proprietorship • Most common form of business organization • Business owned and operated by a single person • Easiest form of business to set up • Advantages • Owner receives all profits • Decisions on how to run the business can be made quickly • Disadvantages • Owner responsible for all problems related to business • Owner has unlimited liability, all personal assets of owner may be seized to pay debts • Hard to raise financial capital • Difficult to attract qualified employees, can’t offer fringe benefits (insurance, sick leave, etc.)

3. Types of Businesses • Partnerships • Owned by two or more people • Business partners bound by articles of partnership • Determine how much each member will contribute, what role each person has • How profits will be shared • How partners will be added or removed • Advantages • Multiple owners can raise more money • Owners do not pay corporate income tax • Each owner brings certain skills to help the business • Disadvantages • Legal structure is complex • Owners have unlimited liability

4. Types of Businesses • Corporations • Has many of the rights and responsibilities of an individual • Can do anything a person can do (own property, pay taxes, get sued) except vote • 20% of all businesses are corporations • Charter is a government document that grants them permission to organize • Specifies amount of stock that will be issued • Stockholders become owners of the corporation • Money received from selling stock is used to set up and run company • Stockholders elect a board of directors to act on their behalf • Board hires managers to run the company on a daily basis

5. Types of Businesses • Advantages • Easy to raise financial capital (sell shares of stock) • Ability to raise capital allows corporations to grow huge • Many have economies larger than some countries • Board of directors can hire managers to run company and replace them if they fail • Ownership can be easily transferred by selling stock • Corporations have limited liability, if company fails individuals not liable for companies debts • Disadvantages • Expensive and complex to set up • Owners have little say in business because of stockholders • Subject to more regulation by government • Have to release financial reports to keep shareholders informed of business • Stockholders subject to double taxation (taxes on corporation and on shareholder earnings

6. Types of Businesses • Other types of business organizations • Non-profits • Uses surplus funds to promote interests of members (hospitals, churches and social service agencies) • Earnings not distributed to owners • Exempt from income and property taxation • Cooperatives • Voluntary organization that is formed for economic activity • Buy bulk goods on behalf of members • Farmers Cooperatives members sell crops directly to central markets

7. Corporations, Mergers and Multinationals Corporate Combinations • Companies combine with other companies to create larger more efficient firms • Can sell goods at a lower price Three types of mergers • Horizontal Merger • Two or more companies that compete in the same market and provide the same good or service • Try to improve efficiency, reduce costs and boost revenue • Monitored closely by the federal government so they do not create a monopoly • Vertical Merger • Companies involved in different stages of producing good or service • New firm can control all phases of production • Typically do not lessen competition • Conglomerate • Buy companies that produce unrelated goods • Have more that three businesses that produce unrelated products • One business earns a majority of the firms profits

8. Corporations, Mergers and Multinationals Multinational Corporations • Produce goods throughout the world • Operate in more than one country at a time • Must obey laws and pay taxes in all countries where they operate • Many have operating budgets bigger than most governments • Advantages • Provide jobs • Spread technology • Help poorer nations improve their standard of living • Disadvantages • Have too much influence over culture and politics in countries where they operate • Working conditions are poor

9. Other Organizations Business franchise • Semi independent business that pays fees to parent company • In return it has the exclusive right to sell a certain product in a given area • Franchiser (parent company) develops products and works with local franchise to produce and sell product • Allows owners a degree of control and owners benefit from support of parent company

10. Other Organizations Advantages • Come with a built in reputation • Management and training support • Standardized quality • owners follow certain rules and processes to guarantee product quality • National advertising • Financial assistance • Centralized buying power • buy materials in bulk to keep costs down Disadvantages • High franchising fees and royalties • Royalties are a share of earnings • Strict operating standards • Must follow all rules in the franchise agreement • Purchasing restrictions • Limited product line • can only sell approved products

11. Labor Unions • Labor unions are groups of workers who band together to gain better pay and working conditions • 14% of American workers belong to a union • Two types of unions • Trade unions- all workers perform the same skill (craft union) • Industrial unions- all workers in the same industry

12. Labor Unions • Organized labor operates at three levels- local, national and the federation • Local- members of a factory, company or geographic area • Deals with a company negotiating a contract and monitors the terms of a contract • National unions help set up local unions and to negotiate contracts between local unions and companies • Provides lawyers and staff to negotiate contracts for the entire industry • Federation level- AFL-CIO is a union that represents 13 million workers worldwide

13. Labor Unions • Some criticize unions for trying to control the labor supply • Some unions support the closed shop where a worker had to be a union member to be hired • 1947Taft-Hartley Act closed shops became illegal in any company that participated in interstate commerce • More common now is the union shop • Companies hire nonunion workers but they must join the union to begin working • Taft Hartley allows states to ban this activity • These states are called right to work states that prevent unions from forcing workers to join unions • Modified union shops workers can join union if they want to, but are not required to join • Union can’t be brought into a workplace unless a majority of workers vote for it • National Labor Relations Board oversees union activity

15. Labor Unions • Union carries out collective bargaining • Officials from union and company meet to discuss terms of worker contacts (hours worked, wages, benefits) • When two parties can’t agree they try mediation • Third party comes in to help both sides reach an agreement • Some cases workers choose arbitration • Where third party decides how to settle the disagreement • Both parties agree in advance to accept what arbitrator decides • Unions and management use different tools to try to get other side to accept agreement • Workers can strike where all union workers refuse to work • Unions can encourage the public to boycott the business’ products • Companies can lockout workers until they meet their terms

16. Business in Our Economy Section 3

17. Business in Our Economy • Businesses play many different roles in our economy • Consumers- purchase goods and services from other businesses (raw materials, office supplies, etc.) • Employers- provide jobs and pay workers • Producers- produce a wide variety of goods and services for consumption

18. Business in Our Economy Responsibilities of Businesses • Responsibility to consumers • to make sure products are safe • To advertise truthfully • If they do not follow these rules government can step in and regulate the industry or pull the products from the market • Responsibilities to owners (and stockholders) • Especially important for corporations • To protect shareholders corporations release financial information regularly • One purpose of transparency is to provide investors with information to see if investment is worth the risk • Government can step in if companies are not honest

19. Business in Our Economy • Responsibility to employees • Give workers a safe workplace • Treat workers fairly without discrimination • 1990 Americans with Disabilities Act keeps employees from discriminating on the basis of mental or physical disabilities • Responsibilities to the Community • Many businesses feel they have a social responsibility to pursue goals that benefit society as well as themselves • Many companies give money to charities or take an active role in their community