BUSINESS ORGANIZATIONS CHAPTER 7 TYPES OF BUSINESS ORGANIZATIONS

BUSINESS ORGANIZATIONS CHAPTER 7

TYPES OF BUSINESS ORGANIZATIONS 1. 2. 3. 4. 5. 6. 7. Sole Proprietorship Partnerships Corporations Corporate combinations Franchises Cooperatives Nonprofit

SOLE PROPRIETORSHIP n. A business owned and operated by one person – Oldest – Simplest – Most common type

TYPES OF BUSINESS ORGANIZATIONS 2000 - 2004

ADVANTAGES OF SOLE PROPRIETORSHIPS n EASE OF START-UP – Easy to form – Little money – Government restrictions n FULL CONTROL – Can make immediate decisions n EXCLUSIVE RIGHTS TO PROFITS – Owner keeps all profits

DISADVANTAGES OF SOLE PROPRIETORSHIPS n UNLIMITED LIABILITY – Responsible for all business debts n SOLE RESPONSIBILITY – Responsible for all aspects of the business n LIMITED GROWTH POTENTIAL – Lack or difficulty obtaining resources n LACK OF LONGEVITY – Dependent upon one person’s abilities

Lester is the owner of a small manufacturing business. When business prospects look good, he orders $50, 000 worth of supplies and uses them in creating merchandise. Unfortunately, there's a sudden drop in demand for his products, and Lester can't sell the items he has produced. When the company that sold Lester the supplies demands payment, he can't pay the bill. As sole proprietor, Lester is personally liable for this business obligation. This means that the creditor can sue him and go after not only Lester's business assets, but his personal property as well. This can include his house, his car, and his personal bank account.

n Shirley is the owner of a flower shop. One day Roger, one of Shirley's employees, is delivering flowers using a truck owned by the business. Roger strikes and seriously injures a pedestrian. The injured pedestrian sues Roger, claiming that he drove carelessly and caused the accident. The lawsuit names Shirley as a co-defendant. After a trial, the jury returns a large verdict against Shirley as owner of the business. Shirley is personally liable to the injured pedestrian. This means the pedestrian can go after all of Shirley's assets, business and personal.

ALLEN PARK PROPRIETORS n Big Ben’s Comix n Allen Park Family Chiropractic

PARTNERSHIPS n. A business owned & controlled by two or more people n Doctors, lawyers, accountants, small stores, construction companies

FORMS OF PARTNERSHIPS n GENERAL PARTNERSHIP – Partners have equal decision-making authority – Responsible for all business’s debts n LIMITED PARTNERSHIP – Investors provide financial help for a share of the profits – Investors are limited to the amount of money they invest – Often times they have limited decision-making authority.

ADVANTAGES OF PARTNERSHIPS n EASE OF START-UP – Low costs – Partnership contract n SPECIALIZATION – Share duties n SHARED DECISION MAKING – Consult on ways to improve business n SHARED BUSINESS LOSSES – Able to obtain additional resources

DISADVANTAGES OF PARTNERSHIPS n UNLIMITED LIABILITY – Partners may lose more than they invested n POTENTIAL FOR CONFLICT – Disagreements among partners n LACK OF LONGEVITY – Ability of all partners to sustain the business

PARTNERSHIP BUSINESSES IN ALLEN PARK n AP Daily Scoop n Sylvia’s Super Sub Shop

CORPORATIONS n Business in which a group of owners, called stockholders, share in the profits and losses. – Treated as an individual – Can own property, hire workers, make contracts, pay taxes, sue and be sued, make and sell products. – Food, steel, oil, insurance companies, supermarket chains.

NET INCOME OF BUSINESSES

ARTICLES OF INCORPORATION 1. 2. 3. 4. 5. 6. Name & purpose of the proposed corporation Address of the corporate headquarters Method of fund-raising the corporation will undertake Amount of money the corporation expects to raise Names and addresses of the major corporate officers Length of time the corporation is intended to exist-either indefinitely or for a specified period of time

OWNERS/SHARHOLDERS Who elect the BOARD OF DIRECTORS That selects CORPORATE OFFICERS Who hire VICE PRESIDENTS PRODUCTION OPERATIONS MARKETING DISTRIBUTION DEPARTMENT HEADS R&D QUALITY CONTROL PERSONNEL FINANCE ADVERTISING SALES WAREHOUSING DELIVERIES EMPLOYEES ORGANIZATION & CONTROL IN A TYPICAL CORPORATION

CORPORATE FINANCE n Board of directors is responsible for deciding how the corporation will raise funds. – – – – Stocks – ownership of the firm Shares – portion of ownership Dividends – profits paid to shareholders Common stock - shareholders have voice in how the company is run Preferred stock - paid dividends before common stock holders Corporate bond – certificate exchanged for money borrowed by an investor Principal – amount of money borrowed Interest – amount of money the borrower must pay

ADVANTAGES OF CORPORATIONS STOCKHOLDERS n Limited liability – can only lose the amount of their stock in the company n Flexibility –can take back their investment. CORPORATION n Limited liability – n Separation of ownership from management – cannot take away personal assets assign tasks to specialists n Easy to raise capital – can sell stock n Longevity – corporate structure

DISADVANTAGES OF CORPORATIONS n CORPORATE ISSUES – High costs – Government guidelines & regulations – Slow decision making process n STOCKHOLDER ISSUES – Earn money without working – Lack of control n SHARED ISSUES – Taxed twice

OTHER ORGANIZATIONS n Corporate combinations n Franchises n Cooperatives n Nonprofit organizations

CORPORATE COMBINATIONS MERGER – • When one company joins another company • 3 types of mergers 1. Horizontal 2. Vertical 3. Conglomerate

HORIZONTAL COMBINATIONS n. A merger of two or more corporations n Producing the same good or service – Example – Standard Oil bought out several smaller oil producing companies. – Example - Gap buys Banana Republic § they are both clothing retailers * Creates economies of scale – businesses are able to operate more efficiently = increase profit

VERTICAL COMBINATIONS n Merger between two or more companies involved in different production phases of the same good or service – Example: A retail clothing store corporation buys a clothing factory – Example: U. S. Steel bought mines and railroads, among other businesses * Cuts production costs = increased profit

CONGLOMERATE COMBINATIONS n. A merger of companies producing unrelated products n Example: a clothing store buying an Aerospace business n Example: Gillette makes everything from small appliances to stationary to toiletries. n SUBSIDIARIES - a business that another company either owns or has controlling interest. n Example: GM and Saab

GILLETTE COMPANY http: //www. boston. com/business/gallery/gilletteproducts/

ADVANTAGES OF COMBINATIONS n Efficiency – overlapping jobs & departments n Lower costs - buying existing businesses is less expensive n Financial advantage - because of its large size, they are able to obtain financial capital.

DISADVANTAGES OF COMBINATIONS n Higher rate of unemployment – jobs are reassigned or lost. n Reduced competition - can lead to higher prices.

FRANCHISES n n An enterprise that uses the original company’s name to sell goods and services. Parent company owns the name (franchisor). Person opening the franchise is called the franchisee. Franchisor offers: – – – Training for employees National advertising Disadvantage: little to no control over products and operation

COOPERATIVES (CO-OPS) A business owned collectively (together) by those who use its goods or services. n Cooperatives may be organized to provide just about any good or service such as: n – Business services, such as personnel and benefits management and group purchasing of goods and services – Childcare – Credit and personal financial services – Food and food services – Funeral and memorial service planning – Health care – Health Insurance – Housing – Insurance – Legal and professional services

NONPROFIT ORGANIZATIONS n Provides goods and services but does not focus on financial gain. n Structured like corporations n Profit is not taxed n Non-profit organizations include – churches, public schools, public charities, public clinics and hospitals, political organizations, legal aid societies, volunteer services organizations, labor unions, professional associations, research institutes, museums, and some governmental agencies.

Advantages and Disadvantages Cooperatives: Non-profit n Advantage: Share n Advantage: intrinsic decision-making, full rewards, most are access to services subsidized by government n Disadvantage: Greater potential for conflict, n Disadvantages: Profits can be more are reinvested in org. , expensive, longevity is dependent on all on funding members