1. Economics Chapter 8
Business
Organizations

2. Chapter 8
Section 1
Sole
Proprietorship

3. One of the first decisions entrepreneurs must make is what kind of business organization they will have.
A business organization is an establishment formed to carry on commercial enterprise.

4. A sole proprietorship is a business owned and run by one person.
The most common form of business organization is the sole proprietorship.
A sole proprietorship is a business owned and run by one person.

5. About 75 percent of all businesses in the United States are sole proprietorships.
However, since most sole proprietorships are small, they account for only 6 percent of all United States sales.
Your local bakery, barber shop, and bicycle repair shop are most likely sole proprietorships.

6. The Advantages of Sole Proprietorships
The biggest advantage of the sole proprietorship is that the owner gets to keep all profits after paying income taxes.

8. Relatively Few Regulations
A proprietorship is the least-regulated form of business organization.

9. Sole Receiver of Profit
After paying taxes, the owner of sole proprietorship keeps all the profits.

10. Full Control
Owners of sole proprietorships can run their businesses as they wish.

11. Easy to Discontinue
Besides paying off legal obligations, such as taxes and debt, no other legal obligations need to be met to stop doing business.

12. The Disadvantages of Sole Proprietorships
The most important disadvantage of sole proprietorships is unlimited personal liability.
Liability is the legal obligation to pay debts.

13. If the business fails, the owner may have to sell personal property to cover those debts.
The owner of a sole proprietorship business may be personally liable for faults of the business.

14. Sole proprietorships have limited access to resources, such as physical capital

15. Human capital can also be limited, because no one knows everything.
It may also be hard to find good employees.
That is because many small businesses cannot afford fringe benefits.

16. Sole proprietorships also lack
permanence. Whenever an
owner closes shop due
to illness, retirement, or
any other reason,
the business
ceases to exist.

17. Chapter 8
Section 2
Partnerships

18. A partnership is a business organization owned by two or more persons.
The partners must agree on how profits and responsibilities are divided.

19. Types of Partnerships

20. General Partnership In a general partnership, partners share
equally in both
responsibility
and liability.

21. Examples of General Partnerships
Doctors, lawyers, accountants and other professionals often form general partnerships, as well as small retail stores, farms, construction companies and family businesses.

22. Limited Partnership
In a limited partnership, only one partner is required to be a general partner, or to have unlimited personal
liability for
the firm.

23. Limited Partnerships Both partners: Contribute money to the business.
One partner manages the business and holds unlimited liability.

24. Limited Liability Partnership
A newer type of partnership is the limited liability partnership. In this form, all partners are limited partners.

25. Limited Liability Partnerships
This partnership functions as a general partnership, except that:
Partners are limited from personal liability is certain situations.

26. Legal Matters Since parnership agreements are not required by law:
It is wise to have an attorney draw up articles of partnership.
This document sets legal rules that define how the business is run, to eleimate disagreement.

27. The Law and Partnerships
If partners do not have their own agreement:
The Uniform Partnership Act (UPA) is used.
Used by most States, it defines basic rules for partnerships.

28. Advantages of Partnerships
There are four (4)

29. Ease of Start-Up
Partnerships are easy to establish. There is no required partnership agreement, but it is recommended that partners develop articles of partnership.

30. Shared Decision Making and Specialization
In a successful partnership, each partner brings different strengths and
skills to the
business.

31. Larger Pool of Capital
Each partner's assets, or money and other valuables, improve the firm's pool and its ability to borrow funds for operations or expansion.

32. Taxation
Individual partners are subject to taxes, but the business itself does not have to pay taxes.

33. Disadvantages of Partnerships

34. Unless the partnership is a limited liability partnership, at least one partner has unlimited liability.

35. General partners are bound by each other’s actions.

36. Partnerships also have the potential for conflict
Partnerships also have the potential for conflict. Partners need to ensure that they agree about work habits, goals, management styles, ethics, and general business philosophies.

37. Chapter 8
Section 3
Corporations,
Mergers,
And Multinationals

38. Most large businesses in the United States are corporations.
A corporation is a legal entity, or being, owned by individual stockholders.

39. Each stockholder has limited liability for the firm's debts, and can lose only as much as he or she has invested.
Stockholders own stocks, which represent their share of ownership in the corporation.

40. All corporations have the same basic structure.
Stockholders elect a board of directors.
The board makes the important decisions for the corporation and appoints officers to run the corporation.

41. The most important advantage of the corporate structure is limiting liability.
Stockholders can only lose the amount of money they have invested.
The board makes the important decisions for the corporation and appoints officers to run the corporation.

42. Corporate Mergers
As a corporation grows, it may decide to merge, or combine, with another company or companies.
Mergers are regulated by federal anti-trust law to prevent monopolies.

43. Horizontal mergers join two or more firms in the same market.
For example, two automakers may decide to form a larger company.

44. Vertical mergers join two or more firms involved in different stages of making the same good or service.
For example, an automaker may merge with the company that supplies it with rubber tires.

45. Conglomerates combine com­panies which produce complete­ly unrelated goods or services.
Multinational corporations (MNCs) are corporations that operate in more than one country at a time.

46. Advantages of Corporations

47. Advantages for the Stockholders
Individual investors do not carry responsibility for the corporation’s actions.
Shares of stock are transferable, which means that stockholders can sell their stock to others for money.

48. Advantages for the Corporation
Corporations have potential for more growth than other business forms.
Corporations can borrow money by selling bonds.
Corporations can hire the best available labor to create and market the best services or goods possible.
Corporations have long lives.

49. Disadvantages for Corporations

50. Difficulty and Expense of Start-Up
Corporate charters can be expensive and time consuming to establish. A state license, known as a certificate of incorporation, must be obtained.

51. Double Taxation
Corporations must pay taxes on their income. Owners also pay taxes on dividends, or the portion of the corporate profits paid to them.

52. Loss of Control
Managers and boards of directors, not owners, manage corporations.

53. More Regulation
Corporations face more regulations than other kinds of business organizations.

54. Multinational Corporations (MNCs)

55. Advantages of MNCs
Multinationals benefit consumers by offering products worldwide.
They spread new technologies
They spread production methods across the globe.

56. Disadvantages of MNCs
Some people feel that MNCs unduly influence culture and politics where they operate.
Critics of multinationals are concerned about wages and working conditions provided by MNCs in foreign countries.

57. Chapter 8
Section 4
Other
Organizations

58. A business franchise is a business that is semi-independent.

59. It pays fees to a parent company.
In return, the business gets the exclusive right to sell a certain product or service in a given area.
The parent company, or franchiser, develops the products and business system and helps the local franchise owners produce and sell their products.

60. For a small business owner, a franchise has the advantage of a built-in reputation.
However, the franchise owner must give up some freedom, and must also pay fees and even a share of earnings.

61. Advantages of Business Franchises
Recognized brand name/reputation
Management training
Business support
Standardized quality
National advertising programs
Financial assistance from parent
Centralized buying power

62. Disadvantages of Business Franchises
Submission to parental guidance
High franchising fees
High royalties (part of your profits paid to corporation)
Strict operating standards
Purchasing restrictions
Limited product line

63. A cooperative is a business organization owned and operated by a group of people for their shared benefit.

64. Consumer cooperatives sell merchandise to their members at reduced prices
They are retail outlets owned and operated by consumers are called consumer cooperatives, or purchasing cooperatives. Consumer cooperatives sell their goods to their members at reduced prices.

65. Cooperatives that provide services only are called service cooperatives.
These are cooperatives that provide a service, or assistance, rather than goods, discounted insurance, such as banking services, health care, legal help, or baby-sitting services.

66. Producer cooperatives are agricultural marketing cooperatives that help members sell their products and are formed by small farmers.

67. Nonprofit organizations function like businesses but do not operate for profit.
These nonprofit organizations are usually in the business of serving society.

68. The government exempts nonprofit organizations from income taxes.
Many nonprofit organizations operate with partial government support.
Trade associations are nonprofit organizations that promote the interests of particular industries.

69. Nonprofit organizations are usually formed to benefit society.
They mostly provide services, rather than goods.

70. Nonprofit organizations include museums, public schools, YMCA’s, hospitals, adoption agencies, professional organizations, business associations, trade associations, and labor unions.