Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Sole Proprietorships Most common form of business organizations in the US - about 75% Business owned and managed by a single person All the profits and debts 75% of businesses, but only about 6% of total sales

0.9% 0.4% 9% 8% 69% 12% Size by $$ 13% 48% 16% Size by type

Advantages Relatively easy to start up Some minimum requirements A little paperwork and some legal expenses Some minimum requirements Authorization - business license Site permit Register the name

Advantages Few regulations Owner gets all the profit Full Control Least regulated form of business Zoning Laws Separate areas are designated for commercial and residential uses Owner gets all the profit Full Control Easy to get out of business Cover debts and taxes

Disadvantages Unlimited Personal Liability Limited access to resources Legal obligation to pay debts Limited access to resources Barriers to entry? Physical/ Human Capital? Lack of Permanence Limited life expectancy? Benefits to employees Lack of experienced employees Responsibility

Partnerships CH 8.2 Business owned by two or more people Specify division of profits and responsibilities About 7% of all businesses in the US 5% of all sales in the US

15% 9% 59% 4% 8% 4% 8% 18% 9% 54%

Types of Partnerships General Partnership Limited Partnership Responsibilities and liability shared equally Doctors, lawyers, construction companies Limited Partnership Liability falls on one person More control to the general partner Other partners only contribute $ Lose only investments

Types of Partnerships Limited Liability Partnership (LLP) Every partner is a limited partner Exempts each of them from each other’s mistakes Lawyers, Physicians, dentists, accountants

Advantages Easy to start No written agreement necessary Articles of partnership Spells out rights and responsibilities Sharing of profits and losses How new partners can join Uniform Partnership Act State law to establish rules for partnerships Common ownership interests Shared management responsibilities

Advantages Profits are shared however the partnership decides No regulations Specialization Skills brought to business Larger pool of capital More people means more assets Prestigious Taxes No taxes on business, just income generated

Disadvantages Unlimited liability Conflict Actions of one partner can jeopardize everyone else Pick partners carefully LLP Conflict Goals, work habits, ethics, etc. Communication

CH 8.3 Corporations, Mergers, and Multinationals Getting people to invest in your company is another way to allow your company to grow Corporations - the most complex of the business orgs. Legal entity owned by individual stock holders, each of which has limited liability of debts Stock (shares) represent the portion of ownership

Corporations Different than SP’s 20% of businesses in US Defined as a separate entity Must pay taxes Makes contracts Sues/ gets sued 20% of businesses in US 90% of all the products sold

$ 19% 23% 11% 6% 10% 31% Type 34% p.196 15% 17%

2 Types of Corporations Closely Held Corporations Stock issued to only a few people Usually family members, passed down AKA - privately held corporations Publicly Held Corporations Many shareholders who buy and sell stock

Structure Owners elect a board of directors Directors make all the decision making Appoints corporate officers that oversee production Officers hire managers, who hire employees

Advantages Incorporation - forming of Corp. serves interests of both individuals and the Company Limited liability Transferable ownership Ability to attract capital Longer life

Individual advantages Limited Liability No real responsibility Invest your $ for a ROI, can’t lose more Flexibility - Ability to sell your stocks and move on Start losing money, not responsible for company debts

Advantages for Corporations More potential for growth Easier to raise $ Sell as much stock as charter will allow Bonds - certificates sold that guarantee interest Experts run business Long Life Stock is transferable Can continue indefinitely

Disadvantages Much harder to start up More expensive License - Certificate of Incorporation (Corporate Charter) Name Statement of purpose Length of time it will run Founders’ names HQ address Method for fund raising Rules for management

Disadvantages Double Taxation Loss of Control More Regulation Seen as its own entity, taxed in addition to income of individuals Tax when shares are sold too Loss of Control More Regulation Meetings for shareholders File quarterly reports to Security Exchange Commission (SEC) Fed agency that regulates the stock market

Corporate Combinations Three major types Horizontal Merger - two or more in the same market

Combinations Vertical Mergers - joining of different stages of production Carnegie Steel

Combinations Conglomerate - combination of companies that have nothing to do with each other No one part of the business earns substantially more than the others

Multinationals (MNC’s) HQ in one country with branches in others Must follow laws of country they are operating in as well as pay taxes Some of the biggest have budgets larger than Govt budgets

Advantages Disadvantages Provide jobs worldwide Spread technology Improve standard of living Influence politics, culture Low wages offered Disadvantages

Other Organizations CH 8.4 Business franchises Semi independent Pays fees to franchisers Exclusive rights to sell products Fast food, hotels,

Advantages Reputation Training and support Standardized quality Nationalized advertising Financial assistance Centralized buying power Bulk saving passed on

Disadvantages High fees/ royalties Strict standards Hours, dress codes, procedures Purchasing restrictions Must buy from certain approved suppliers Limited product line

Cooperatives Owned and operated by a group of individuals for their shared benefit Three categories Consumer Co-ops Housing, Colombia House Service Co-ops Credit unions Producer Co-ops Agriculture/ sell crops for you

Nonprofit Orgs. Usually work to benefit society some how Museums, Public Schools, Red Cross, Salvation Army, hospitals, churches No income tax Almost all provide a service rather than a good

Nonprofit Orgs. Some provide services to specific groups Professional orgs - improve work conditions, image, skills American Bar Association - lawyers American Medical Association - doctors Business Associations - promotes business interests in a particular area Chamber of Commerce, Better Business Bureau Trade Associations Promote interests of particular industries Labor Unions