Business Organization

Business Organization

• Def: An establishment formed to carry on commercial enterprise.

• 3 main types:Sole Proprietorship

PartnershipsCorporations

Others, less commonBusiness Franchises, Cooperatives, Nonprofits

Sole Proprietorship

• Def: a business org. owned and managed by a single individual

• Sole Prop. Are the most common form of business, but are small, generating only 6% of all sales.

Advantages of Sole Proprietorships

• Ease of start-up• Relatively few regulations• Sole receiver of profit• Full control • Easy to discontinue

Disadvantages of Sole Proprietorships

• Unlimited Personal Liability: Owner is legally bound to pay all business debts.

• Limited Access to Resources: Lack of money, capital, etc prevent sole proprietorships from becoming large.

• Lack Permanence: when the owner closes shops, retires etc, the business ceases to exist.

Partnerships

• Def. business owned by two or more people who share responsibility and liability for the business

Do Now

• Please answer the following questions on your notes sheet:

• 1) What are the three main types of business organizations?

• 2) Define Sole Proprietorships AND partnership (in your own words-Provide an example of each)

• 3) What are the advantages and disadvantages of a sole proprietorship?

Advantages of Partnerships

• Ease of start-up• Shared decision making and specializations-

Partners divide workload and skill to business• Larger pool of capital– partners both invest

funds into the business• Taxation: Partners pay their own taxes, but the

business does not

Disadvantages of Partnerships

• Partners are bound by each other’s actions (i.e. if your partner makes a stupid mistake, you are stuck with it!)

• Potential for conflict- arguments disputes can cause major problems

• At least one partner has unlimited liability

Corporations

• Def: A business that is a legal entity (it exists on its own with rights like a person) owned by individual stockholders

• Stock: sometimes called shares, represent a stockholder’s portion of ownership of a corporation

Advantages of a Corporation

• Advantages for the stockholders– Do not carry responsibility for corporation’s

actions (corporations does something illegal or owe debt, stockholders are not responsible)

– Shares of stocks are transferable, they can be sold to others for a profit.

Advantages of a Corporation

• Advantages for the corporation– Have potential for more growth than other

business forms– Can borrow money by selling bonds– Can hire the best labor (human resources) and

best equipment (capital resources)– Have long lives

Disadvantages of Corporations

• Difficult and expensive to start up• Double Taxation (the corporation must pay

taxes on income and stockholders pay taxes on profit)

• Loss of control (managers and board members control, not the owner)

• More regulation (government regulates more than any other bus. org.)

Growth of Corporations

• Mergers are combinations of two or more corporations into a larger corporation.

• Watched by the government---no monopolies.

3 Types of Mergers

• Horizontal Merger: combination of 2 or more corporations who provide the same good or service (ex: Cingular and AT&T)

• Vertical Merger: Combine 2 or more firms involved in different stages of producing a good or service. (ex: Carnegie Steel owned the Iron mines and Steel Refineries)

• Conglomerate: a combination of 3 or more businesses making unrelated products. (ex AOL (Internet) Time (news magazine) Warner (TV and movies)

Multinational Corporations

• Def: Large Corporations headquartered in one country with subsidiaries (smaller branches) throughout the world.

• Advantages: Offer products worldwide, spread technology and jobs around the global.

• Disadvantages: Influence cultures of other countries with little worker protection (sweatshops, and pollution)

Business Franchises

• Def. A semi-independent business that pays fees to a larger parent company in return for the right to sell a product or service.

• Ex. McDonalds, 7-11, Pizza Hut – Pay money to use the name, symbols, and for help

in running the store/restaurant/etc.

Advantages of Business Franchises

• Management and Training support• Standardized quality• National advertising programs• Financial assistance• Centralized buying power

Disadvantages of Business Franchises

• High franchise fees and royalties (pay to use name)

• Strict operating standards• Purchasing restrictions• Limited product line (can’t sell hot dogs at

KFC)

Cooperatives

• Def: a business organization owned and operated by a group of individuals for their shared benefit.

• Ex: Sam’s Club/BJ’s: must pay to be a member and shop there but get benefit of reduced prices. Also credit unions

Non-Profit Organizations

• Def. Institutions that function like businesses but do not operate for profit. Any earned profits are put back into the organizations, not paid out to share holders. They are exempt from federal income taxes.

• Ex. The Red Cross, Goodwill, YMCA, Churches, Labor Unions, Businesses and Trade Associations, the Bar Association, etc.

ExamplesSole Proprietorships

•Landscaping •Local restaurant•Corner Store•Hair Salon/ Barber shop

Partnerships

•Accounting Firms•Law Offices•Doctor/Dentist

Corporations

•Walmart•IBM•Xerox•Kodak

More ExamplesFranchises

•McDonalds•KFC•Burger King•7-11•Taco Bell•Popeyes•Sports Teams

Cooperatives

•Labor Unions•Credit Unions•Business Associations•Sam’s Club/BJ’s

Nonprofit

•Churches•Red Cross•Goodwill•YMCA/YWCA•Salvation Army