Business Organizations and Market Structure Unit 2: Microeconomics This unit explains how to start a business, the different ways businesses are organized and investing options.

SSEMI3: Business Organizations Explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation with regards to number of owners, liability, lifespan, decision-making, and taxation.

Where to get business help Small Business Administration - Government help for business and loans. Small Business Incubator- management advice, lower rents, job creation Internet-search for competition, on- line business help.

Elements of a Business Operation Expenses - spend $ to make $ Inventory - what you sell Receipts- $ from customers Advertising - promote your business Recordkeeping - profit/loss statements, income statements, payroll, balance sheets Risk - no guarantee of success

Forms of Business Organizations An Economic institution uses the factors of production to satisfy consumer wants and needs. Profit seeking enterprise that links scarce resources and consumer wants and needs.

Terms to Know Liability = refers to responsibility for paying debts of business Unlimited liability = if business is unable to meet financial obligations, owners of business personally responsible Limited liability = responsibility for debts restricted to ownership stake (shares of stock) of business owner Lifespan = what happens to business when owner leaves/dies Limited life = business closing or reorganizing and opening under new owners Unlimited life = business passes to new owners through sale of shares without ending the business Decision Making = entity responsible for day to day operating decisions of business

Four Kinds of Business Organizations Sole proprietorship Partnership General Limited Joint venture Corporation Franchise

Sole Proprietorship Normally run by 1 person. You take all risks and rewards Obtain licenses, permits, location and inventory Proprietor is from Latin meaning “property” Most numerous form of business in the USA. There are more than 17 million which account for over 73% of all businesses in the USA.

Type of liability of owners Type of Business # of owners Type of liability of owners Lifespan of Business Operating Decisions Type of Taxation Sole Proprietorship One Unlimited (Responsible for all) Limited Owner Single

Sole Proprietorship Keep all profits Make all decisions Easy to start Advantages Disadvantages Keep all profits Make all decisions Easy to start Unlimited liability Limited life Difficult to attract top talent Limited access to funds

Partnership Formed by drawing up a legal document called the partnership agreement. This document defines duties, pay, investment, profit sharing, etc. Partnerships are 7.1% of all businesses in the USA.

Assumed - Name Statute A law requiring persons to make a public filing of their identities if their partnership operates under a name that does not reveal the owner’s identity.

Types of Partnerships General - both partners are involved in the day to day operations. Limited - one partner may be a “silent partner” Joint venture - partnership formed for a short period of time then dissolved.

Partnership Avoid partnerships with friends and family. Partnerships are like a marriage, some work and some don’t.

Type of liability of owners Type of Business # of owners Type of liability of owners Lifespan of Business Operating Decisions Type of Taxation Partnership Two or more Unlimited (Responsible for all) Limited Owners Single

Partnership Easy to start Can benefit from specialization Advantages Disadvantages Easy to start Can benefit from specialization More access to start up money than sole proprietorships Unlimited liability Limited life Potential for conflicts Division of profits

Coca Cola --Roberto Goizueta, CEO 1981-97. “A billion hours ago, human life appeared on earth. A billion Coca-Colas ago was yesterday morning. --Roberto Goizueta, CEO 1981-97.

What is a Corporation? A business that can own property, pay taxes, make contracts, sue and be sued. Registering a corporation Articles of incorporation - a legal document filed in the state where the corporation operates. Corporate charter-granted by the state. Each corporation must have a unique name.

Corporations 19.9% of all businesses in the USA are corporations. Generate 88% of all business revenue. Corporations can issue stocks and bonds.

Levi’s Corporation The design is so right it need never alter, a timeless classic of clothes. Adaptable, like any well- designed object you can wear them with almost anything. --The designer Margaret Howell gives her view on Levi Jeans.

Stocks and bonds Two kinds of stock: Common and preferred Stock represents ownership in the company Dividends can be earned based on stock ownership Bonds – Bond owners loan money to the company, and will be repaid when the bond matures.

Corporate Structure The Board of Directors is responsible for supervision and controlling the corporation. The Board does not run the business on a day to day basis. Instead it hires officers for the company, President, VP, etc. who run the business and hire other employees.

Corporate structure Stockholders elect the Board of Directors select the CEO

Corporations Articles of incorporation must be filed with the state. Each corporation must have a unique name within the state they are incorporated. LLC-Limited Liability Corporation-has characteristics of a partnership and corporation as the owners are limited in liability to their capital contributions S-corporations are small corporations

IBM IBM under Thomas Watson Snr imposed a rigorous dress code on employees: blue suits, white shirts and ties. Beards were prohibited until 1945, when the bearded Herbert Grosch was taken on as IBM’s second scientist. How times have changed

Type of liability of owners Type of Business # of owners Type of liability of owners Lifespan of Business Operating Decisions Type of Taxation Corporation Determined by who owns shares of corporations stock Limited Unlimited Board of Directors elected by shareholders; Professional Managers & Employees Double

Corporation Access to large amounts of funds for expansion Advantages Disadvantages Access to large amounts of funds for expansion Can grow large and offer opportunity for advancement Limited liability Unlimited life Double Taxation Can lose control of company Greater government oversight & legal issues

Corporations Publicly held businesses have hundreds or thousands of owners who exchange their ownership on public exchanges. Answering to shareholders.

Franchises A franchise is the right to use a business name and sell their product. A franchise fee is money paid to the parent company for those rights.

So you would like a franchise? Advantages Disadvantages Established name Established product Advertising May not be able to pick location Monthly fees due to parent organization Costs & corporate guidelines