Business Organizations

1. Business Organizations Chapter 8

2. Business Organizations • An establishment formed to carry on commercial enterprise • Sole Proprietorship • Partnerships • Corporations • Franchises, Cooperation, and Non-Profits

3. Sole Proprietorships Chapter 8, Section 1

4. Sole Proprietorships • A business organization owned and managed by a single individual • Advantages: • Earns all profit • Easier to start up • Business license • Few Regulations • May need permits or subject to zoning laws • Zoning…a law that designates property use (commercial or business)

5. Advantages: • Full control • Owner controls all aspects of the business and all decisions • Easy to discontinue • Just pay off debts

6. Disadvantages of SP • Unlimited liability • Liability…legally bound obligations • Limited Access to Resources • Limited financial capital • Hard to attract good labor • Limited fringe benefits (payments other than wages and salaries) • Owner may not have complete knowledge • May have to turn down work • Lack of permanence

7. Partnerships Chapter 8, Section 2

8. Partnerships • Business organizations owned by two or more individuals who agree on a division of responsibilities and profit • Types of Partnerships • General Partnership • Limited Partnership • Limited Liability Partnership (LLP)

9. General Partnership • Partners share both, equally • Responsibility and liability

10. Limited Partnership • A partnership where one partner is a general partner and the others make only a financial investment • Silent Partner • The general partner assumes liability • Others are only responsible for financial investment

11. Limited Liability Partnership • All partners are limited partners • Protects one partner from another’s mistake

12. Advantages of Partnership • Ease of Start-up • Articles of Partnership…not required by law but recommended • Outlines the partnership terms and agreement • If they do not file their own article, they fall under the Uniform Partnership Act (UPA) • General guidelines and protections for partners • Shared decision making and specialization • Specialized roles can be filled • Extensive knowledge

13. Advantages of Partnership • Larger pool of capital • More assets (money and valuables) • Can attract better employment • Taxation • Partners pay taxes on their income, the business does not

14. Disadvantages of Partnership • Unlimited Liability • Unless an LLP, all general partners are subject to the actions of the other general partners • Potential for Conflict • Different points of view • Hard to terminate without agreement

15. Corporations, Mergers, and Multinationals Chapter 8, Section 3

16. Corporations • The most complex form of business organization • Owned by many individuals or stockholders • Also know as shareholders • Stock...represent shares of ownership in a company

17. Types of Corporations • Closely held corporations • Also known as privately held corporations • Issue stock to only a few individuals (usually family) and do not exchange stock publicly • Publicly held corporation • Corporations that publicly sell stock on stock exchanges

18. Shareholders Board of Directors CEO or President Vice Presidents Managers Employees Corporate Structure

19. Advantages of Incorporation • For Stockholders • Limited liability • Only responsible for investment • Transferable ownership • You can sell your stock • For Corporation • Can attract capital (sell stock or bonds) • Long life • Corporations can last a long time

20. Disadvantages of Incorporation • Difficult and expensive to start up • Requires a large amount of capital • Double Taxation • Both the corporation and shareholders pay tax • Loss of control • Managers run the company...may not follow the founder’s intent • More regulation • Corporations are subject to more government control

21. Corporate Combinations • Mergers...joining of two companies into one • Horizontal Merger • Two or more firms with the same good join together • Ex: United/Continental • Vertical Merger • Two or more firms involved in different stages of production for a single good • Ex: Ford and Goodrich • Conglomerates • Merger of three or more companies making completely different products • Ex: General Electric

22. Multinational Corporations • World’s largest corporations that produce and sell their goods all over the world • Ex: Apple • Advantages of : • Provide jobs and products around the world • Introduce technology and higher standard of living to LDC’s • Disadvantages • Influence culture and politics • Low wages, poor working conditions (sweat shops)

23. Other Organizations Chapter 8, Section 4

24. Franchises • Semi independent business that pays fees to a parent company in return for the exclusive right to sell a certain product in a given area • http://www.mcdonalds.com/content/corp/franchise/franchisinghome.html

25. Advantages of Franchises • Management training and support • Standardized “quality” • People know the product they are getting • National Advertising • Financial assistance • Centralized buying power

26. Disadvantages for Franchises • High franchising fees and royalties • Royalties…a share of earnings • Strict operating standards • Purchasing restrictions • Buy supply from parent company • Limited product line

27. Cooperatives • Business organization that operate for the benefit of its members • Consumer co-ops…retail stores or outlets. Work off memberships or pay dues • BJ’s, Health food co-ops • Service co-ops…provide services rather than goods • Banking…credit unions • Producer co-ops…help to sell products. Producers can concentrate on the goods while co-op markets the goods • Dairy farmers

28. Non Profits • Operates like a business but no goal of making profit • Must benefit the public • Museums, schools, charities • Tax exempt

29. Professional Organizations • Business associations…promote commerce in an area • Better Business Bureau, Chamber of Commerce • Trade Associations…non profit that promotes a particular industry or trade • American Dairy Association…Got Milk?? • Labor Unions…improve working conditions for workers