1. Types of Business Organizations
Chapter 8 in the Economics Textbook
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2. Sole Proprietorships
Every business begins with someone with an idea about how to earn money
Business organization: is an enterprise that produces goods or services
Most goods and services come from these organizations
The purpose of most business organizations is to turn a profit
This is achieved by producing things that the consumer wants
They also provide jobs and income that can be used for spending and saving
They also help pay taxes to fund our federal government

3. Sole Proprietorships
The most common type of business organization in the US is the sole proprietorship
It is a business owned and operated by a single person
These can be anything from a grocery store to a high end clothing store
They account for more than 70% of all businesses in the US
However they only account for 5% of all sales

4. Revenues of Sole Proprietorships
Most do not make a lot of money
These are normally run part time out of an owners home

5. Advantages of Sole Proprietorships
Easy to open or close
Requires funding, license, permits and a registered name. As long as the bills are settled they can close at anytime
Few Regulations
Follow zoning laws and treat employees according to labor laws
Freedom and Control
Makes all decisions
Keeps the Profits

6. Disadvantages of Sole Proprietorship
Limited Funds
One of the reasons why they are more likely to fail. Without money to fall back on it can be a struggle to stay in business
Limited Life
Unlimited Liability
Legally responsible for all financial aspects of the business
If the business fails you are still responsible for the debts

7. The Characteristics of Partnerships
A Partnership is a business co-owned by two or more people who agree on how responsibilities, profits and losses will be divided
Can be found in all types of businesses from construction to reality firms
There are several types of partnerships
General, limited, and limited liability, but they are all run in the same basic way

8. Forms of Partnerships General Partnerships Limited Partnership
Limited Liability Partnership (LLP)
Is one in which one partner is not involved in the day to day running of the business and is only liable for the funds they invested
Share responsibility for management and each on is liable for the debts and losses
All partners are limited partners and not responsible for the debts and liabilities of the other partners

9. Advantages of Partnerships
Easy to Open & Close
Few Regulations
Access to Resources
Joint Decision Making
Specialization

10. Disadvantages of Partnerships
Unlimited Liability
Potential for Conflict
Limited Life

11. Partnerships by Revenues
Partnerships are generally more successful as you can see by the revenue increase compared to by a sole proprietorship

12. Characteristics of Corperations
A Corporation is a business owned by individuals called shareholders, or stockholders
The shareholders own the rights to the company's profits, but they face limited liability for the company's debts and losses.
They acquire ownership through the purchase of stock, or shares of ownership in the company
Public Company: Stock is freely bought and sold
Private Company: one that retains control over who can buy and sell the stock

13. Corporate Structure Stock Holders Board of Directors Corp. Officers
Vice Presidents
Departments
Employees

14. Advantages of a Corporation
Access To Resources
Can more easily barrow from banks, as well as sell stocks or issue bonds to boost funds. This makes it easier for Corp. to grow.
Professional Managers
They can hire specialized professionals in sales and finance. This leads to higher profits
Limited Liability
Each investor is only responsible for the money they put in
Unlimited Life
Can be sustained even when share holders sell their stock and as long as they are a viable company

15. Corporations by Revenue
Most people think Corporations as very large company’s, but actually more than a third take in less than $100,000 in revenues a year

16. Disadvantages of Corporations
Start-Up Cost & Effort
Lots of paperwork for the government that requires a law firm to help with setup
Heavy Regulation
Must prepare reports yearly for the Securities and Exchange Commission (SEC). They are the gov agency that oversees the selling of stock.
These regulations are to ensure that they are run to benefit the shareholders in the company
Double Taxation
Taxed on the profits of the company, then taxed on their income from the company
Loss of Control
Decisions are made by a board of directors

17. Special Types of Business Organizations
Non-profit Organizations
Government owned
Cooperatives (Co-ops)
Franchise

18. Non-profit (must receive a charter and has unlimited life)
Serve a particular purpose but don’t try to make a profit
Examples: Red Cross, a church, schools

19. Government Owned US Postal Service Baton Rouge River Center
Government provides services such as police, schools, courts
Corporation owned by the government
Examples:
US Postal Service
Baton Rouge River Center

20. Franchises
Franchise – A business made up of semi-independent businesses that all offer the same products or services.
Examples:
Subway
McDonald’s

21. Franchise: Advantages v. Disadvantages
Advantages: Some level of independence, proven products, advertisement
Disadvantages: Share profits with the franchiser, no control over some aspects of the business

22. Co-ops Associations that perform business functions for their members;
Examples: Credit Unions, Ocean Spray, Sam’s Club

23. Growth and Expansion Horizontal Merger
Two or more firms that produce the same kind of product join forces.

24. Horizontal Mergers
Reebok and Adidas (2005)—At the time were the 2nd and 3rd biggest makers of sports shoes. Benefits: Trim costs for company; improve its ability to compete with Nike
Alltel & Verizon
May merge to catch up with rival
May merge to lose its identity

25. The Best of Two Worlds Chrysler—international trusted name
Fiat--Able to provide fuel efficient cars and new technology for manufacturing

26. Facebook Buys Instagram

27. Vertical Merger Vertical Merger
Merger of firms involved in different steps of manufacturing and marketing of a product
Example: Shell Oil (Refining) + Texaco (gas stations)
Google acquired mobile-device maker Motorola Mobility (Android) smart phones and television set-top boxes

28. Conglomerate (merger)
Merger of companies that produce unrelated goods or services.
Not vertical nor horizontal

29. Multinational
Corporation that has manufacturing in multiple countries. (Nike, Google)
Can move resources, goods, services, and financial capital across national borders.

30. Outsourcing Contracting out part of a business to a third party
Often in another country
Example: Call centers
Why would companies want to outsource?

31. Multinational --disadvantages
May exploit workers of other nations, build factories that emit harmful waste