Business Organization Chapter 3 Business Organization

3 Types of Organizations Sole Proprietorship Partnership Corporation

Sole Proprietorship Businesses owned and run by a single individual Easiest form of business to start Examples: lemonade stand, lawn mowing

Sole Proprietorship Advantages: You’re your own boss. easy to start, easy to manage, owner can keep all the profits without sharing with other owners, doesn't have to pay separate business income taxes, determine own hours, easy to get out of business.

Sole Proprietorship Disadvantages: owner has UNLIMITED LIABILITY!!! (full responsibility for all losses, debts, and failures), difficult to raise financial capital, size might make it inefficient, owner may have limited managerial experience or financial funds difficult to get experienced employees, limited life span in the business.

Partnership Businesses jointly owned and run by two or more people General Partnership: all partners share responsibilities Limited Partnership: at least one partner isn't active in daily business activities Examples: law firms, physician's groups, architectural firms

Partnership Advantages: easy to start, easy to manage, lack of special taxes on partnership, easy to get financial capital (you have a partner), more efficient daily operations (ownerships can share the work load), easier to attract talented workers

Partnership Disadvantages In General Partnerships, each partner is fully responsible for actions of other partners. In Limited Partnerships, a partner's responsibility for debts depends on size of his/her investment in the firm. Limited life span in the business. Potential conflict between partners. lack of resources compared to corporation shared decision-making and profits unlimited liability

Corporations Form of business recognized by law as a separate legal entity with all the rights of an individual Have to file for permission with federal or state government to create Partially owned by stockholders (investors who buys ownership certificates in the firm) Examples: Ford, GM, ABC, NBC

Corporations Advantages easy to raise financial capital (can sell stocks to investors, can borrow money by issuing bonds that it will repay with interest), limited liability for owners, directors can hire professional managers to run the firm, unlimited life, easy to transfer ownership (stockholders can sell their stocks)

Corporations Disadvantages: double taxation of profits (corporation pays taxes on its profits and stockholders pay taxes on money made), difficult and expensive to get a corporation charter, owners/stock shareholders have little to no voice in how business is run, (Even with majority stock) subject to more government regulation.

Typical Corporation Stockholders (Chairperson) (President) Marketing Board of Directors (Chairperson) Secretary CEO Treasurer (President) Vice President Vice President Vice President Vice President Marketing Production R & D Personnel Dept. Supervisor Dept. Director Mgr Mgr Of Personnel

Percentage of Employed Percentage of Firms Corporations 60% Percentage of Employed Sole Prop. & Part. 40% Percentage of Sales Corporations 20% Partnerships 7% Corporations 89% Sole Proprietorships 73% Partnerships 6% Sole Proprietorships 5%

Define: In Chapter 3 Section 1 define the following terms:

Limited Liability Company LLC – limited liability Not a corporation – pass through entity to person(s) who own it – no double taxation

Franchises Franchiser Franchisee

Non - Profit Organizations Churches & Religious organizations Charitable Organizations - United Way – American Red Cross

Non - Profit Organizations Cooperatives consumer/purchasing - wholesale clubs producer/marketing - agriculture

Non - Profit Organizations Cooperatives consumer/purchasing - wholesale clubs producer/marketing - agriculture service - credit unions, insurance, HMO, child care (fastest growing) industrial/esops – more common in Europe

Vertical Integration U.S. Steel Coke fields Iron ore deposits Steel mills Ships purchased by Carnegie Coke fields Iron ore deposits Steel mills Ships Railroads purchased by Carnegie Coke fields purchased by Carnegie Coke fields Iron ore deposits purchased by Carnegie Coke fields Iron ore deposits Steel mills purchased by Carnegie Vertical Integration U.S. Steel

Vertical Integration GM General Motors Assembly Manufact- uring Refining Transportation Mining

Chrysler GM General Motors Ford Horizontal Integration

Economy of Scale Disadvantages of Bigness Conglomerates – next slide impersonal waste of resources/pollution development of monopolies insecurity of workers Conglomerates – next slide Cost/benefit analysis - ahead

Soft Drink Clothing Bakery Parent Company Sporting Goods Fast Food Gasoline Sporting Goods Fast Food Conglomerate