Types of Business Organizations Chapter 8 in the Economics Textbook Pages 225-250

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

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

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

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

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

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

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

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

Disadvantages of Partnerships Unlimited Liability Potential for Conflict Limited Life

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Facebook Buys Instagram

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

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

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

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

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