Business Organizations Business Organizations 3 kinds in todays

Business Organizations

Business Organizations • 3 kinds in today’s economy – Sole proprietorship – Partnership – Corporation

Sole Proprietorship • Most common form of business organization in the U. S. • A business owned and run by one person. • Easy to start, manage, change, or end. • Disadvantage is the owner only has limited liability, meaning they are personally and fully responsible. – High risk, high reward

Sole Proprietorship • Minimum inventory – Stock of finished goods and parts in reserve. • Limited life – Firm legally ceases to exist when the owner dies, quits, or sells the business.

Partnerships • Business that is jointly owned by 2 or more persons. – General • All partners are responsible – Some more than others (Example: 50/50, 40/60, etc. ) – Limited • At least one partner isn’t active in the daily running of the business, although, they may have contributed funds.

Partnerships • Easy to establish and manage. • Also, funds are contributed from several people. • Disadvantage is each partner is responsible for the business which can create a clash of perspectives.

Corporations • Separate legal entity having all the rights of an individual. • Charter: Government document that gives permission to create a corporation.

Corporations • Stockholders (shareholders) are owners as well. • If corporation suffers, so do the stockholders.

Business Growth and Expansion • Businesses can grow in one of 2 ways. – Reinvesting some of its profits – Merger: Combination of 2 or more businesses to form a single firm.

Reinvestment Growth • Using revenue from sales to invest. • Estimating cash flows – Income statement: Report showing a business’s sales, expenses, and profits for a certain period. – Net income: Subtracting all its expenses, including taxes, from its revenues.

Reinvestment Growth • Expenses can include inventory, wages and salaries, interest payments, and depreciation, a non-cash charge that accounts for the general wear and tear of its capital goods. • Cash flow: Sum of net income and depreciation is the bottom line, a real measure of profits for the business. – Reinvested into the business.

Growth Through Mergers • One firm merges, one gives up its separate legal identity. – Example: Continental and United Airlines merged and kept the United name. • Reasons – Grow faster, become more efficient, acquire or deliver a better product, eliminate a rival, or to change its image.

Growth Through Mergers • Types – Horizontal merger: Two or more firms that make the same kind of product join forces. – Vertical merger: Firms involved in different steps of manufacturing or marketing join together.

Growth Through Mergers • Conglomerate: Firm that has at least 4 businesses, each making unrelated products, none of which is responsible for a majority of the sales. • Multinational: Has manufacturing or servicing operations in a number of different countries.