Chapter 8 Business Organizations Types of Organizations Business

Chapter 8 Business Organizations

Types of Organizations Business Organization – establishment formed to carry on commercial enterprise n Three Types • Sole Proprietorship • Partnerships • Corporations n

Sole Proprietorships n A business owned and managed by a single individual

Advantages of Sole Proprietorships n Easy to Start-Up • Very little paperwork and legal expense • Minimal requirements n. Authorization – must obtain a business license n. Site Permit – permission to use a building n. Pick a business name

Advantages of Sole Proprietorships n Relatively Few Regulations • Sole proprietorships are the least regulated businesses • Major regulation is the city zoning laws – city determines what areas will accommodate each kind of building

Advantages of Sole Proprietorships Sole Receiver of Profit n Full Control n Easy to Discontinue n It’s all mine!

Disadvantages of Sole Proprietorships Unlimited I’ve lost Personal Liability everything! n Limited Access to Resources n Lack of Permanence n

Partnerships n A business organization owned by two or more persons who agree on a specific division of responsibilities and profits

Three Kinds of Partnership n General Partnership – Equal share of responsibility and liability among partners • Usually doctors, lawyers, accountants

Three Kinds of Partnership n Limited Partnership – one partner has unlimited personal liability, others contribute money • Could be any kind of business

Three Kinds of Partnership n Limited Liability Partnership (LLP) – all partners are limited from personal liability • States must grant permission to be an LLP – usually for doctors, lawyers, and dentists

Advantages of Partnerships n Easy to Start • Articles of Partnership – legal agreement of how to share profits and losses

Advantages of Partnerships n Easy to Start • Without articles of partnership, the business falls under the Uniform Partnership Act

Advantages of Partnerships Shared Decision Making and Specialization n Large Pool of Capital n Taxation – no special taxes on the business n

Disadvantages of Partnerships : -@! Unlimited Liability (except with an LLP) n Potential for Conflict n ; ~[

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Corporations, Mergers, Multinationals n Large entity owned by individual stockholders who all share limited liability for the firm’s debts • Stock – also called shares – a portion of ownership in a corporation

Corporations n Corporations are a separate legal entity from the stockholders who own it – so they’re taxed twice!

Two Types of Corporations n Closely-Held Corporations – majority of stock is passed down through the family

Two Types of Corporations n Publicly Held Corporations – many shareholders buying stock on the open market

Corporate Structure Stockholders Elect Board of Directors CEO COO Managers Other Employees

Advantages of Incorporation n Advantages to the investor: • Limited liability • Shares are transferable

Advantages of Incorporation n Advantages to the corporation • Higher potential for growth • Long lasting • Nearly unlimited capital n Selling bonds

Disadvantages of Incorporation Difficulty and Expense of Start-Up n Double Taxation n Loss of Control n High Regulations n

Combining Corporations - Mergers n Horizontal Mergers – join two or more firms competing in the same market +

Combining Corporations - Mergers n Vertical Mergers – join two or more firms involved in different stages of producing the same good +

Combining Corporations Conglomerates n Firms that buy other companies that produce totally unrelated goods GE GE Insurance NBC GE Plastics

Multinationals Corporations that operate in more than one country at a time n They must pay taxes and obey the laws of each country they operate in n Many have bigger budgets than the country they are in n

Business Franchises n Semiindependent business that pays fees to a parent company

Business Franchises n In return for the fees, the business gets exclusive rights to sell the parent company’s product in a certain area

Advantages of Opening a Franchise Management Training n Standardized Quality n National Advertising Program n I’m the same everywhere!

Advantages of Opening a Franchise n Financial Assistance n Centralized Buying Power – the parent company buys in bulk to save everyone money

Disadvantages of Opening a Franchise High Franchising Fees – parent company gets a share of the profit called a royalty n Strict Operating Standards n

Disadvantages of Opening a Franchise Purchasing Restrictions n Limited Product Line n

Cooperative Organizations n A business organization owned and operated by a group of individuals for their shared benefit

Three Kinds of Co-op’s n Consumer Cooperatives – sell merchandise to members at reduced prices • Often require members to work or pay a membership fee

Three Kinds of Co-op’s Service Cooperatives – same as consumer co-op, but it provides a service n Producer Cooperatives – agricultural co-ops that help farmers sell their product n

Nonprofit Organizations Do not work for profit, but rather to help people n Exempt from income taxes n

Nonprofit Organizations Professional Organizations – improve the image, working condition, and skill level of people in a profession n Business Association – promote the business interests of a geographical area (like a city or a state) n

Nonprofit Organizations Trade Associations – promote the interest of an industry n Labor Unions – organized group of workers that aim to improve conditions, hours, and wages n