Businesses Economics Ch 8 Types of Businesses n

Businesses Economics Ch 8

Types of Businesses n Sole Proprietorship n n Partnerships n n A sole proprietorship is a business owned by a singe person. It comprises 75% of the total business in the U. S. , though only 6% of sales. There are fewer regulation, and the owner receives all the profits and all of the debts. Partnerships are businesses run by 2 or more people, who share profits (not always equally), and depending on the type of partnership, can be limited in liability from what your partner does. These businesses are relatively easy to start up, and account for about 7% of all businesses and 5% of all sales. Corporations n Corporations comprise about 18% of all businesses but have about 90% of total sales.

Corporations (1) n n n Corporations can be closely held (private), or publicly held entities. Corporations are owned by the stockholders of the company, have a legal identity, pay taxes, make contracts, and can sue and be sued. Control of the corporation is by the stockholders, who then hire a chief executive officer, and other officers to run the business. The holder of the most stock (or who votes the most stock through proxy) is called the chairman of the board. A proxy is where someone gives another person the ability to vote for them.

Corporations (2) n n The corporate entity has advantages and disadvantages. Among its advantages are limited liability for the stockholders, and the stock is easily transferable. The corporation itself is flexible, and it can raise money quickly through sale of stock. It can also issue bonds, which are a kind of special I. O. U. that gains interest, to borrow money.

Corporations (3) n n On the other hand, corporations are complex to and difficult to start up. A special charter must be granted, which specifies the amount of stock a corporation can issue. Corporations are also subject to additional regulations, and are taxed on their profit. This means that before stockholders get their share of the profits, it is taxed, then the stockholders themselves are taxed for personal income. This is seen as reasonable in most ways, though recently the taxation of dividend income has been reduced to 15%.

Corporate Combinations n Horizontal Merger n n Vertical Merger n n Horizontal mergers occur when two corporations making the same kind of product merge together to form a larger corporation. These kinds of mergers are strictly scrutinized to insure that this does not violate anti-trust laws and prevent reasonable competition. Vertical mergers are when a corporation merges with or acquires businesses it is directly related with in the production or distribution of it’s goods. Conglomerates n The last kind of merger forms what is called a conglomerate. This is where three or more unrelated businesses are merged together and none of them produces the majority of the profit. Conglomerates typically do not pose a problem with direct competition.

Multinational (or Transnational) Corporations n n n Multinational Corporations are corporations that conduct business in more than one country. Typically this means that there are factories, outlets, business offices, or other aspects of the business that are conducted in multiple countries at the same time. These are the largest types of corporations, and their sales often are larger than many third world countries.

Franchises n n Franchises are businesses that are semi-independent, and pay fees to a parent company. Franchises are a very visible form of business ownership, and can be found throughout the world. Often one person will own several franchises throughout a geographic area. The most common type of franchise is the fast food franchise, though many auto dealerships are also run this way.

Non-Profit Organizations n n n Non-profit organizations are types of businesses that operate without the purpose of generating a profit. Non-profit organizations are exempt from taxation, and sometimes receive government support. These organizations come in many different varieties, from churches, hospitals, public schools, museums, aid organizations, environmental groups, professional and business associations, labor unions, and other such entities.