Business Organizations Chapter 3

Types of Business Organization Three ways modern businesses are organized Proprietorship- A business owned and ran by an individual Partnership- Unincorporated business owned by two or more people who share the profits and responsibility for debts Corporation- Form of Business organization recognized by law as a separate legal entity Major difference is the liability to the owners Liability- responsibility for the all debts and losses of the business

Proprietorship Also known as a Sole Proprietorship Advantages Easy to start Owner can rapidly respond to business needs Owner keeps profits, doesn’t have to share with anyone Business is exempt from income tax Disadvantages Owner has unlimited liability Difficulty raising financial capital Limited Life- Business ceases to exists when owner sells, quits or dies

Partnership General Partnership – All partners are responsible for the management and financial obligations of the business Limited Partnership- At least one owner is not active in the running of the business. Limited partner has limited liability for the debts and obligations of the business

Partnership (cont.) Advantages- Ease of start-up Easy to manage Lack of taxes on the partnership Easier to raise financial capital More efficient to operate Easier to attract employees (Talent)

Partnership (cont.) Disadvantages- Each partner is responsible for the acts of all the other partners Limited partners responsibility is limited by their investment in their firm Limited life- if the partner dies or leaves, the partnership needs to be dissolved Have to work with others (Good and Bad)

Corporations Corporation- form of business organization recognized by law as a separate legal entity Allows the Corporation to buy and sell property, enter legal agreements and to sue or be sued Formed by filing documents with the federal and state government. Formed when company receives a Charter

Corporation (cont.) Charter- government document that gives permission to create a corporation States company’s name, address, purpose and other features States the number of shares of stock that can be sold to investors

Corporation (cont.) Corporate structure- Types of stock- Common stock- voting stock 1 vote per share Preferred stock- Non voting stock, but receives dividends before common stock holders. Also get investment back before common shareholders. Have many officers, usually to handle different areas of the corporation.

Corporation (cont.) Advantages- Limited liability for shareholders Can hire professional managers Unlimited Life- Easy to raise capital- They can sell more stock Issue bonds

Corporation (cont.) Disadvantages- Have to keep detailed sales and expense records. Double Taxation More difficult to get a charter and to start up Have a large disconnect between owners and managers More government regulation

Business Growth and Expansion “If your business isn’t growing, it is dying” - J.J. McClatchy

Ways to Grow Reinvestment- Putting money back into your business Mergers- Combining two or more companies to make a single firm

Reinvesting Track expenses with Income statement Estimate company’s net income Track testable ways to grow your business

Mergers Horizontal merger- Combination of two or more firms producing the same product Vertical Merger- combination of two firms involved in the different stages of the manufacturing or marketing

Mergers (cont.)

Can grow a business rapidly Ability to control price of resources better Improve efficiency

Mergers (cont.) Conglomerates- Firm with four or more businesses making unrelated products with no single business responsible for a majority of its sales Multinational- Corporation producing and selling without regard to national boundaries and whose business activities are located in several different countries

Non-Profit Organizations (NPO) Non-Profit Organization- operates like a business but does not seek financial gain

Types of N.P.Os Community organizations- Churches, schools, hospitals, welfare groups, adoption agencies Cooperative- meant to perform some economic benefit for its members. Can be consumer, service or producer driven.

Types of N.P.Os Labor unions- An organization of workers formed to represent its members interests in various employment matters Participates in Collective bargaining- Negotiation between union and company representatives over pay, benefits, and other related job matters.

Types of N.P.Os Professional associations- NPO of professional or specialized workers seeking to improve working conditions, skill level and public perception of its profession. Business associations- associations to promote and benefit it’s member businesses

Types of N.P.Os Government agencies- plays an NPO role in the economy Direct role- USPS, FDIC all compete with private companies for services Indirect- regulating and industry or granting money for benefits.