Business and Labor Chapter 22

Types of Businesses Sole proprietorship Most common form of business organization Business owned and operated by a single person Easiest form of business to set up Advantages Owner receives all profits Decisions on how to run the business can be made quickly Disadvantages Owner responsible for all problems related to business Owner has unlimited liability, all personal assets of owner may be seized to pay debts Hard to raise financial capital Difficult to attract qualified employees, can’t offer fringe benefits (insurance, sick leave, etc.)

Types of Businesses Partnerships Owned by two or more people Business partners bound by articles of partnership Determine how much each member will contribute, what role each person has How profits will be shared How partners will be added or removed Advantages Multiple owners can raise more money Owners do not pay corporate income tax Each owner brings certain skills to help the business Disadvantages Legal structure is complex Owners have unlimited liability

Types of Businesses Corporations Has many of the rights and responsibilities of an individual Can do anything a person can do (own property, pay taxes, get sued) except vote 20% of all businesses are corporations Charter is a government document that grants them permission to organize Specifies amount of stock that will be issued Stockholders become owners of the corporation Money received from selling stock is used to set up and run company Stockholders elect a board of directors to act on their behalf Board hires managers to run the company on a daily basis

Types of Businesses Advantages Easy to raise financial capital (sell shares of stock) Ability to raise capital allows corporations to grow huge Many have economies larger than some countries Board of directors can hire managers to run company and replace them if they fail Ownership can be easily transferred by selling stock Corporations have limited liability, if company fails individuals not liable for companies debts Disadvantages Expensive and complex to set up Owners have little say in business because of stockholders Subject to more regulation by government Have to release financial reports to keep shareholders informed of business Stockholders subject to double taxation (taxes on corporation and on shareholder earnings

Types of Businesses Other types of business organizations Non-profits Uses surplus funds to promote interests of members (hospitals, churches and social service agencies) Earnings not distributed to owners Exempt from income and property taxation Cooperatives Voluntary organization that is formed for economic activity Buy bulk goods on behalf of members Farmers Cooperatives members sell crops directly to central markets

Corporations, Mergers and Multinationals Corporate Combinations Companies combine with other companies to create larger more efficient firms Can sell goods at a lower price Three types of mergers Horizontal Merger Two or more companies that compete in the same market and provide the same good or service Try to improve efficiency, reduce costs and boost revenue Monitored closely by the federal government so they do not create a monopoly Vertical Merger Companies involved in different stages of producing good or service New firm can control all phases of production Typically do not lessen competition Conglomerate Buy companies that produce unrelated goods Have more that three businesses that produce unrelated products One business earns a majority of the firms profits

Corporations, Mergers and Multinationals Multinational Corporations Produce goods throughout the world Operate in more than one country at a time Must obey laws and pay taxes in all countries where they operate Many have operating budgets bigger than most governments Advantages Provide jobs Spread technology Help poorer nations improve their standard of living Disadvantages Have too much influence over culture and politics in countries where they operate Working conditions are poor

Other Organizations Business franchise Semi independent business that pays fees to parent company In return it has the exclusive right to sell a certain product in a given area Franchiser (parent company) develops products and works with local franchise to produce and sell product Allows owners a degree of control and owners benefit from support of parent company

Other Organizations Advantages Come with a built in reputation Management and training support Standardized quality owners follow certain rules and processes to guarantee product quality National advertising Financial assistance Centralized buying power buy materials in bulk to keep costs down Disadvantages High franchising fees and royalties Royalties are a share of earnings Strict operating standards Must follow all rules in the franchise agreement Purchasing restrictions Limited product line can only sell approved products

Labor Unions Labor unions are groups of workers who band together to gain better pay and working conditions 14% of American workers belong to a union Two types of unions Trade unions- all workers perform the same skill (craft union) Industrial unions- all workers in the same industry

Labor Unions Organized labor operates at three levels- local, national and the federation Local- members of a factory, company or geographic area Deals with a company negotiating a contract and monitors the terms of a contract National unions help set up local unions and to negotiate contracts between local unions and companies Provides lawyers and staff to negotiate contracts for the entire industry Federation level- AFL-CIO is a union that represents 13 million workers worldwide

Labor Unions Some criticize unions for trying to control the labor supply Some unions support the closed shop where a worker had to be a union member to be hired 1947 Taft-Hartley Act closed shops became illegal in any company that participated in interstate commerce More common now is the union shop Companies hire nonunion workers but they must join the union to begin working Taft Hartley allows states to ban this activity These states are called right to work states that prevent unions from forcing workers to join unions Modified union shops workers can join union if they want to, but are not required to join Union can’t be brought into a workplace unless a majority of workers vote for it National Labor Relations Board oversees union activity

Labor Unions Union carries out collective bargaining Officials from union and company meet to discuss terms of worker contacts (hours worked, wages, benefits) When two parties can’t agree they try mediation Third party comes in to help both sides reach an agreement Some cases workers choose arbitration Where third party decides how to settle the disagreement Both parties agree in advance to accept what arbitrator decides Unions and management use different tools to try to get other side to accept agreement Workers can strike where all union workers refuse to work Unions can encourage the public to boycott the business’ products Companies can lockout workers until they meet their terms

Business in Our Economy Section 3

Business in Our Economy Businesses play many different roles in our economy Consumers- purchase goods and services from other businesses (raw materials, office supplies, etc.) Employers- provide jobs and pay workers Producers- produce a wide variety of goods and services for consumption

Business in Our Economy Responsibilities of Businesses Responsibility to consumers to make sure products are safe To advertise truthfully If they do not follow these rules government can step in and regulate the industry or pull the products from the market Responsibilities to owners (and stockholders) Especially important for corporations To protect shareholders corporations release financial information regularly One purpose of transparency is to provide investors with information to see if investment is worth the risk Government can step in if companies are not honest

Business in Our Economy Responsibility to employees Give workers a safe workplace Treat workers fairly without discrimination 1990 Americans with Disabilities Act keeps employees from discriminating on the basis of mental or physical disabilities Responsibilities to the Community Many businesses feel they have a social responsibility to pursue goals that benefit society as well as themselves Many companies give money to charities or take an active role in their community