1. Business Organizations Chapter 8

2. Business Organizations Defined as: an establishment formed to carry on commercial enterprise Defined as: an establishment formed to carry on commercial enterprise Sole Proprietorship Sole Proprietorship Most common form of business organization Most common form of business organization Partnerships Partnerships Corporations Corporations Franchises, Cooperation, and Non-Profits Franchises, Cooperation, and Non-Profits

3. Sole Proprietorships Chapter 8, Section 1

4. Sole Proprietorships Known as: a business organization owned and managed by a single individual Known as: a business organization owned and managed by a single individual Advantages: Advantages: Earns all profit (also responsible for all debt) Earns all profit (also responsible for all debt) Ease of Start Up Ease of Start Up Business license Business license Few Regulations (most important advantage) Few Regulations (most important advantage) May need permits or subject to zoning laws May need permits or subject to zoning laws Zoning…a law that designates property use (commercial or business) Zoning…a law that designates property use (commercial or business)

5. Advantages: Full control Full control Owner controls all aspects of the business and all decisions Owner controls all aspects of the business and all decisions Can respond quickly to changes in marketplace Can respond quickly to changes in marketplace Easy to discontinue Easy to discontinue Just pay off debts Just pay off debts No other legal obligations need to be met to stop your business No other legal obligations need to be met to stop your business

6. Disadvantages of SP Unlimited liability Unlimited liability Liability…legally bound obligations (obligated to pay debt) Liability…legally bound obligations (obligated to pay debt) Limited Access to Resources Limited Access to Resources Limited $$ (may have to drain savings to start business) Limited $$ (may have to drain savings to start business) Hard to attract good labor Hard to attract good labor Limited fringe benefits (payments other than wages and salaries) Limited fringe benefits (payments other than wages and salaries) Owner may not have all knowledge & skills to succeed Owner may not have all knowledge & skills to succeed May have to turn down work May have to turn down work Not enough time Not enough time Lack of permanence – cannot offer what EVERYONE WANTS Lack of permanence – cannot offer what EVERYONE WANTS

7. Partnerships Chapter 8, Section 2

8. Partnerships Known as: business organizations owned by two or more individuals who agree on a division of responsibilities and profit Known as: business organizations owned by two or more individuals who agree on a division of responsibilities and profit Account for 7% of all businesses in US Account for 7% of all businesses in US Generate 5% of all sales & 10% of all income Generate 5% of all sales & 10% of all income Types of Partnerships Types of Partnerships General General Limited Limited Limited Liability Partnership (LLP) Limited Liability Partnership (LLP)

9. General Partnership Partners share equally Partners share equally Share both responsibility and liability Share both responsibility and liability Many Sole Proprietorships could operate as a General Partnership Many Sole Proprietorships could operate as a General Partnership Ex: Doctors, lawyers, accountants often form partnerships with colleagues Ex: Doctors, lawyers, accountants often form partnerships with colleagues Ex: Small retail stores, farmers, construction companies, family businesses Ex: Small retail stores, farmers, construction companies, family businesses

10. Limited Partnership A partnership where one partner is a general partner and the others make only a financial investment A partnership where one partner is a general partner and the others make only a financial investment The general partner assumes liability The general partner assumes liability Others are only responsible for financial investment Others are only responsible for financial investment LP’s must have at least one general partner but may have several limited partners LP’s must have at least one general partner but may have several limited partners

11. Limited Liability Partnership All partners are limited partners All partners are limited partners Protects one partner from another’s mistake Protects one partner from another’s mistake This is a relatively new type of partnership recognized in most states This is a relatively new type of partnership recognized in most states Most states will allow professionals – lawyers, accountants, dentists, etc. to form a LLP Most states will allow professionals – lawyers, accountants, dentists, etc. to form a LLP Not all businesses can register as LLP Not all businesses can register as LLP

12. Advantages of Partnership Ease of Start-up Ease of Start-up Articles of Partnership…not required by law but recommended (legal agreement) Articles of Partnership…not required by law but recommended (legal agreement) Outlines the partnership terms and agreement (taxes, etc) Outlines the partnership terms and agreement (taxes, etc) If they do not file their own article, they fall under the Uniform Partnership Act (UPA) If they do not file their own article, they fall under the Uniform Partnership Act (UPA) General guidelines and protections for partners General guidelines and protections for partners Shared decision making and specialization Shared decision making and specialization Specialized roles can be filled-each partner has skills Specialized roles can be filled-each partner has skills

13. Advantages of Partnership Larger pool of capital Larger pool of capital More assets (money and valuables) More assets (money and valuables) Each partner has his/her own assets Each partner has his/her own assets Can attract better employment Can attract better employment Larger base of connections to people from each partner Larger base of connections to people from each partner Taxation Taxation Partners pay taxes on their income, the business does not Partners pay taxes on their income, the business does not

14. Disadvantages of Partnership Unlimited Liability Unlimited Liability Unless an LLP, all general partners are subject to the actions of the other general partners – could lose everything including personal property/belongings Unless an LLP, all general partners are subject to the actions of the other general partners – could lose everything including personal property/belongings Potential for Conflict Potential for Conflict Different points of view – too many cooks Different points of view – too many cooks Hard to terminate without agreement Hard to terminate without agreement Many partnerships dissolve because of interpersonal conflicts Many partnerships dissolve because of interpersonal conflicts

15. Corporations, Mergers, and Multinationals Chapter 8, Section 3

16. Corporations The most complex form of business organization The most complex form of business organization Make up only 20% of all businesses in USA Make up only 20% of all businesses in USA 90% of products are made by corporations 90% of products are made by corporations Owned by many individuals or stockholders Owned by many individuals or stockholders Also known as shareholders Also known as shareholders Stock...represent shares of ownership in a company Stock...represent shares of ownership in a company Certificate of ownership Certificate of ownership

17. Types of Corporations Closely held corporations Closely held corporations Also known as privately held corporations Also known as privately held corporations Issue stock to only a few individuals (usually family) and do not exchange stock publicly – rare to sell stocks or exchange stocks Issue stock to only a few individuals (usually family) and do not exchange stock publicly – rare to sell stocks or exchange stocks Publicly held corporation Publicly held corporation Corporations who publicly sell stock on stock - exchanges – Sell stock on NYSE Corporations who publicly sell stock on stock - exchanges – Sell stock on NYSE

18. Corporate Structure Shareholders Board of Directors CEO or President Vice Presidents Managers Employees

19. Advantages of Incorporation For Stockholders For Stockholders Limited liability Limited liability Only responsible for investment, not decisions of Inc. Only responsible for investment, not decisions of Inc. Transferable ownership Transferable ownership You can sell your stock at a higher or lower price You can sell your stock at a higher or lower price For Corporation For Corporation Can attract capital (sell stock or bonds) Can attract capital (sell stock or bonds) Long life – Company will not end when owner dies Long life – Company will not end when owner dies Corporations can last a long time – stocks will be sold Corporations can last a long time – stocks will be sold

20. Disadvantages of Incorporation Difficult and expensive to start up Difficult and expensive to start up Requires a large amount of capital Requires a large amount of capital File certificate of incorporation (long process) File certificate of incorporation (long process) Double Taxation Double Taxation Both the corporation and shareholders pay tax Both the corporation and shareholders pay tax Loss of control Loss of control Managers run the company...may not follow the founder’s intent (may not follow instructions) Managers run the company...may not follow the founder’s intent (may not follow instructions) More regulation More regulation Corporations are subject to more government control Corporations are subject to more government control Must hold annual meetings for stockholders (required) Must hold annual meetings for stockholders (required)

21. Corporate Combinations Mergers...joining of two companies into one Mergers...joining of two companies into one Horizontal Merger Horizontal Merger Two or more firms with the same good join together Two or more firms with the same good join together Ex: McDonalds merge w/ Burger King or DirecTV and Dish Network Ex: McDonalds merge w/ Burger King or DirecTV and Dish Network Vertical Merger Vertical Merger Two or more firms involved in different stages of production for a single good (this will happen when producers feel they will lose suppliers) Two or more firms involved in different stages of production for a single good (this will happen when producers feel they will lose suppliers) Ex: Ford and Goodrich Ex: Ford and Goodrich Conglomerates (no one company earn majority of profit) Conglomerates (no one company earn majority of profit) Merger of three or more companies making completely different products Merger of three or more companies making completely different products Ex: Walt Disney Company Ex: Walt Disney Company http://www.thenation.com/special/bigten.html http://www.thenation.com/special/bigten.html http://www.thenation.com/special/bigten.html

22. Multinational Corporations World’s largest corporations that produce and sell their goods all over the world World’s largest corporations that produce and sell their goods all over the world Ex: Apple Ex: Apple Advantages: Advantages: Provide jobs and products around the world (poor nations) Provide jobs and products around the world (poor nations) Introduce technology and higher standard of living to LDC’s Introduce technology and higher standard of living to LDC’s Disadvantages Disadvantages Influence culture and politics Influence culture and politics Low wages, poor working conditions in the poor nations Low wages, poor working conditions in the poor nations

23. Other Organizations Chapter 8, Section 4

24. Franchises Semi independent business that pays fees to a parent company in return for the exclusive right to sell a certain product in a given area Semi independent business that pays fees to a parent company in return for the exclusive right to sell a certain product in a given area Parent companies are known as the Franchises Parent companies are known as the Franchises Allows for a certain degree of control AND… Allows for a certain degree of control AND… Owners will benefit from the support of the parent company Owners will benefit from the support of the parent company http://www.mcdonalds.com/content/corp/franchis e/franchisinghome.html http://www.mcdonalds.com/content/corp/franchis e/franchisinghome.html http://www.mcdonalds.com/content/corp/franchis e/franchisinghome.html http://www.mcdonalds.com/content/corp/franchis e/franchisinghome.html

25. Advantages of Franchises Management training and support Management training and support Help inexperienced owners gain experiences Help inexperienced owners gain experiences Standardized quality Standardized quality People know the product they are getting People know the product they are getting National Advertising – paid for by parent co. National Advertising – paid for by parent co. Financial assistance – helps owners Financial assistance – helps owners Centralized buying power – buy materials in bulk and passed onto the owners Centralized buying power – buy materials in bulk and passed onto the owners

26. Disadvantages for Franchises High franchising fees and royalties High franchising fees and royalties Royalties…a share of earnings paid to franchise for using their name Royalties…a share of earnings paid to franchise for using their name Strict operating standards – must be followed by owners (hours, dress code, etc.) Strict operating standards – must be followed by owners (hours, dress code, etc.) Purchasing restrictions Purchasing restrictions Owners buy supplies from parent company Owners buy supplies from parent company Limited product line – only approved products Limited product line – only approved products

27. Cooperatives Business organization owned and operated by a group of individuals for their benefit Business organization owned and operated by a group of individuals for their benefit Consumer coops…retail stores or outlets. Work off memberships or pay dues Consumer coops…retail stores or outlets. Work off memberships or pay dues CD clubs, REI, BJ’s, COSTCO CD clubs, REI, BJ’s, COSTCO Service coops…provide services rather than goods Service coops…provide services rather than goods Credit unions, health care, discounted insurances Credit unions, health care, discounted insurances Producer coops…help to sell products. Producers can concentrate on the goods while coop markets the goods (agriculture, crops, etc.) Producer coops…help to sell products. Producers can concentrate on the goods while coop markets the goods (agriculture, crops, etc.) American Dairy Association American Dairy Association

28. Non Profits Operates like a business but no goal of making profit Operates like a business but no goal of making profit Operate with partial gov’t support Operate with partial gov’t support Usually provide services rather than goods Usually provide services rather than goods These usually benefit society These usually benefit society Museums, schools Museums, schools Pay no tax (tax exempt) Pay no tax (tax exempt)

29. Professional Organizations Business associations…promote business in an area Business associations…promote business in an area Better Business Bureau, Chamber of Commerce Better Business Bureau, Chamber of Commerce Trade Associations…non profit that promotes a particular industry Trade Associations…non profit that promotes a particular industry Got Milk?? Got Milk?? Labor Unions…improve working conditions for workers Labor Unions…improve working conditions for workers