Business Organizations

Business organization establishment formed to carry on commercial enterprise

TYPES…

a business owned by one person Sole Proprietorship a business owned by one person Characteristics… Earns all profits Responsible for all losses 75% of all businesses Only generate 6% of sales Usually in the service industry Default business structure

Hair Salon EXAMPLES Lemonade stand

Advantages Disadvantages Easy to start up Unlimited personal liability Authorization- must obtain a business license Site permit Name- register name of business Few regulations Zoning laws Health codes Get all the profits! Easy to discontinue (not a complicated business structure) Unlimited personal liability Limited access to resources Paying for the equipment all by yourself Not enough workers Lack of permanence B/c so easy to discontinue

partners share equally in responsibility and liability Partnerships owned by 2 or more people who agree on a specific division of responsibilities and profits--- Often called a Partnership Agreement partners share equally in responsibility and liability

Advantages Disadvantages Ease of start up Unlimited liability RUPA- Revised Uniform Partnership Act Ordering common ownership interests, profits and loss sharing, and shared management responsibilities Shared decision making Usually in finance, insurance, and real estate Larger pool of capital Assets Unlimited liability Potential for conflict

legal entity owned by stock owners CORPORATION legal entity owned by stock owners

Characteristics More spread out in services, retail, finance, insurance, and real estate Structure- stock holders elect a board of directors Separate legal entity (Can sue/ be sued)

Articles of Incorporation Name Statement of purpose Longevity of corp. For perpetuity- w/o limit Founders’ name and addresses Business headquarters address Method of fund-raising Rules for corp.’s management Par value of stock

2 Types… Closely held corporations- issue stock to only a few people, usually family members Publically held corporations- sells stocks on the public market

Advantages Disadvantages Limited liability for owners Transferable ownership- stockholder advantage Ability to attract capital- corporation advantage Ability to hire experts rather than rely on their own knowledge Long life- unless there is a specific termination date, corp. can continue Difficulty and expense of start-up Double taxation Tax on corporation income Tax on dividends Tax on selling shares- capital gains tax Loss of control Owners don’t necessarily control the running or the decisions of the corp. More regulation SEC- securities and exchange commission

THE BUSINESS POPULATION Business Shares of Domestic Output Percentage of Firms Percentage of Sales Corporations 20% Partnerships 5% Corporations 90% Sole Proprietorships 75% Partnerships 8% Farmer Sole Proprietorship 2%

Corporate Combinations Multinational corporation Horizontal mergers Conglomerate Vertical mergers

Possible monopoly could arise Horizontal Mergers Join 2 or more firms competing in the same market with the same good/service Possible monopoly could arise

Vertical Mergers Join 2 or more firms involved in different stages of producing the same good or service

merging more than 3 firms that make unrelated products Conglomerate merging more than 3 firms that make unrelated products

Multinational Corporation Large corporation that sells goods and services around the world Must obey laws and pay taxes in each country in which they operate

Advantages Disadvantages Provide jobs and products around the world Spread new technologies and production methods Unduly influence the culture and politics of the country in which they operate Concern about low wages and poor working conditions in poorer countries

Other Organizations Franchise Nonprofit Organization Cooperative Organization

Franchise Semi-independent business that pays fees to a parent company in return for a contract for exclusive rights to sell a certain product or service

“The Co-Op” Cooperative Organization owned and operated by a group of individuals for their shared benefit “The Co-Op”

Nonprofit organizations In the business of benefitting society, tax-exempt, YMCA, religious organizations, etc Professional organization- improve the image, working conditions, and skill level of people in a particular occupation, ABA Labor unions- organized group of workers whose aim is to improve working conditions, hours, wages, and fringe benefits Trade associations- promotes interest of a particular industry, American Marketing Association Business associations- promotes collective business interests for an area or for a group of similar businesses, BBB