Business Organizations Forms of Business Organizations Business Growth and Expansion Other Organizations

Forms of Business Organizations Sole Proprietorships –Business run by one person Smallest type in size Most numerous and profitable –Advantages Easy to start; easy to manage; total profits; no business taxes; psychological satisfaction; easy to close –Disadvantages Unlimited liability; hard to raise financial capital; efficiency problems; limited management skills; hard to attract qualified employees; limited life

Partnerships –Business jointly owned by two or more persons Least numerous – smallest proportion of sales/income General partnership –All partners are involved Limited partnership –At least one in not involved in management –Articles of partnership document needed

–Advantages Easy to start; easy to manage; no business taxes; easier to raise financial capital; larger size encourages efficiency; easier to attract skilled employees –Disadvantages Responsible for the acts of each and every partner; limited life; potential for conflicts

Corporations –Business organization recognized by law as a separate legal entity –Receive a charter Investors buy common or preferred stock to become owners –Advantages Easy to raise money; professionals run business; limited liability; business’s life is unlimited; easy to transfer ownership –Disadvantages Charter is expensive; ownership and management are separated; corporate income tax; subject to government regulation

Business Growth and Expansion Growth through reinvestment –Revenue can be used to invest Factories; machinery; new technology Must estimate cash flow before investment –Total sales – expenses, taxes and depreciation=business net income »Depreciation + net income = cash flow (bottom line) What will happen when a business has little or no cash flow?

Growth through mergers –Firms merge One gives up separate legal identity Merge to –Grow faster; more efficient; acquire or deliver a better product; eliminate a rival; or change an image Horizontal merger –Joining firms that make the same product »Banks, grocery stores, etc… Vertical merger –Joining firms involved in different stages of manufacturing or marketing

Conglomerates –Composed of four or more businesses Making unrelated products –none responsible for the majority of the sales Multinational –A corporation with manufacturing and service operations in several countries »Subjected to each nation’s business regulations Why have some multinational companies been criticized?

Non Profit Organizations Community and civic organizations –Business to promote it’s members’ collective interests Not to seek financial gain –Take advantage of corporation’s unlimited life and limited liability –Profit is applied to other projects the further the organization’s mission

Cooperatives –Voluntary association Carry on an economic activity that benefits its members –Consumer: buy food and other necessities in bulk; members donate time to co-op, and members pay lower prices –Service: credit unions, offer services to its members at lower rates –Producer: help members promote or sell their products

Labor unions –Represent worker’s interests and negotiate with management Collective bargaining Professional associations –Set standard for those in the profession Influence government policies Business associations –Industries or trade associations that represent specific kinds of businesses Better business bureau –Protect consumer

Government’s role Directly –Agencies produce and distribute goods and services to consumers TVA (electricity), U.S. Postal Service (stamps and mail delivery) Indirectly –Regulates public utilities or provides Social Security and student financial aid