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Business Organizations
Liability Finance Options (raising $$)
Tax Implications
Life of the Business
Local/Regional
Examples(s)
Sole Proprietorship
Partnership
Corporation
Franchises
Use the packet and pgs. 212-221 to complete the following chart (either on this page or in your notes):
Sole Proprietorships
Keep all profitsEasy to manage“Be your own boss”Easy to start / endNo special taxes
Advantages Disadvantages• Difficult to raise
capital• Unlimited Liability• Inefficient• Don’t attract the best
employees• “Be your own boss”• Limited Life
PartnershipsLimited Liability (L.P.)Shared lossesEasier to manageNo special taxesEasier to raise capitalMore efficient through
specialization
Advantages Disadvantages• Unlimited Liability
(G.P.)• Shared profits• Potential for owner
disagreement• More difficult to start• Limited Life
What is a corporation?A corporation is a legal entity
separate from the owner or owners of the business
Corporations can be publicly or privately owned
Corporations can be very small or very large
Can just anyone start a corporation?Yes, it’s pretty easy!
Why might you want to incorporate?
CorporationsLimited LiabilityEasy to raise capitalShare lossesEconomies of scaleAttract best workersUnlimited LifeEasy to Transfer
OwnershipCan issue bonds
Advantages Disadvantages• Share profits• Difficult to start• Little say in day-to-
day operations• Corporate income tax
– Double Taxation• Government
regulation
Corporate Questions…1. Who owns a corporation?2. Who is responsible for the long-run direction of a corporation?3. Who is responsible for day-to-day operations of a corporation?
Corporate Structure
Private Corporations
Public Corporations
IPO = Initial Public OfferingIPO = Initial Public Offering Corporation: Corporation: WWEWWE Date Went Public: Date Went Public: Oct 19, 1999 Oct 19, 1999 Shares Offered (mil.): Shares Offered (mil.): 10.00 10.00 IPO Price:IPO Price: $17.00 per share $17.00 per share Offering Amount: Offering Amount:
$170,000,000$170,000,000 Sold out right awaySold out right away
Reasons?Reasons?Raise money for expansionRaise money for expansionPay down debtsPay down debtsCash in!Cash in!
Why “Go Public?”
FranchisesFranchisee (Investor)Built in infrastructureEconomies of scaleAttract best workersAttachment to a brandFixed commitmentFranchisor (Brand)Grow business with:
Less riskLess investmentLess liability
Advantages DisadvantagesFranchisee (Investor)•Large up-front cost•Share profits•Sacrifice autonomy•Fixed commitmentFranchisor (Brand)•Less control•Limited profits
Hybrid Organizations
Limited Liability Corporation or Limited Liability Company
LLC LLP• Limited Liability
Partnership
Advantages and disadvantages vary, depending on the law of the state in which and LLP or LLC operates.
Homework!!!Read Ch. 8, Section 2 and complete 8-1 and 8-2 Quizzes.
Business ExpansionMergersConglomeratesMultinationals
MergersHorizontal Merger
Firms in the same industryVertical Merger
Firms in the same supply chainConglomerate Merger
Firms in many different markets under one company umbrella
Horizontal Merger
How does the government decide if it will allow a merger?
Does it reduce competition in a way that will hurt consumers?
Announced, March 2011
Abandoned, Dec. 2011
Horizontal Merger
Horizontal Merger
Banking Mergers: 2007-2008
Vertical Merger
Who is the King of the Vertical Merger in America?
ConglomeratesCompanies that operate four or more distinct
businesses, none of which constitutes more than 50% of their total revenue.
Translation: Companies that do lots of different “stuff”
Multi-NationalsCompanies that operate in more than one
nation.
CooperativesConsumer CooperativesService CooperativesProducer Cooperatives
Consumer Cooperatives
Well, sort of…
Service Cooperatives
Producer Cooperatives
What do you notice about these products?
Non-Profit OrganizationsA Non-Profit Organization (NPO) has no
owners who receive profits if the revenues of the business exceed its costs.
NPOs are legally constituted and their goals typically center on activities of public or private interest without any commercial or monetary profit purposes.
NPOs are active in a wide range of areas, including the public service, charity, philanthropy, education, and religion.
Non-Profit Organizations
Does anyone make money working for a non-profit?
Labor UnionsGroups of people who work in the same industry (or for the same company) who come together to achieve some common goal(s).
What are the 3 goals?
Better Pay
Better Working Conditions
Job Security
Labor Unions
Are labor unions good or bad for the economy?
Professional AssociationsGroups of people who work in the same profession (usually “white collar” jobs) that come together to promote the public perception of their profession
Professional AssociationsWhy might someone join a professional association?
Business AssociationsBusiness Association – a group of unrelated businesses that comes together to help its members market their products.
The GovernmentProtectorRegulatorConsumerProducerProvider