Business Organizations Chapter 3

Sec. 1 Forms of Business Organization 3 TYPES OF BUSINESS ORGANIZATIONS: Sole Proprietorship Partnership Corporation

Sole Proprietorship Disadvantages: Advantages: 1.Unlimited Liability (owner is responsible for all losses and debts) 2. Difficulty in raising financial capital 3. Size and Efficiency 4. Limited managerial experience – “no business sense” 5. Difficulty in hiring qualified employees 6. Limited Life (legally ceases when owner dies, quits or sells business) Advantages: 1. Easy to start up 2. Ease of management 3. Owners enjoy profits w/o having to share w/ other owners. 4. Separate income tax 5. “Own boss” 6. Ease to be out of business

Partnerships General (all partners are responsible) vs Partnerships General (all partners are responsible) vs. limited (partner is not active n the daily business) Advantages Ease of establishment Ease of management Lack of special taxes on a partnership Partnerships can usually attract financial more easily than proprietorship. Large size Easier to attract top talent into their organizations. Disadvantages Partners are responsible for the acts of other partners Limited Partnership (when a partner dies the partnership must be dissolved or reorganized) Potential for conflict between partners – lead to bankruptcy

Forming a Corporation File permission from the nat’l or state gov. If approved, receives a charter States the # of shares of stock, or ownership certified in the firm. These shares are sold to investors, called stockholders or shareholders. The money is used to set up the corporation. If it is successful, eventually each shareholder receives a dividend- (check repressing a portion of the corporate earnings)

Corporation Stocks Common Stock Basic ownership of a corp. (elect board members and control the company) Preferred Stock - Represents nonvoting ownership shares of the corporation. When an investor purchases stocks, he or she becomes an owner with certain rights.

Board of Directors- Apple

Corporations Advantages Ease of raising financial capital Hire managers to run the business Limited liability to owners (corporation not the owners is responsible) Unlimited life Disadvantages Difficulty and expense of getting a charter (license). Owners have little say in how the business is run Double taxation (corporate profit/ personal income) More government regulation

Sec. 2 Business Growth and Expansion Two Types of Business Growth Reinvesting some of the Merger Profits (combination of two or more business)

Mergers Reasons for mergers: To expand and desire to be bigger Efficiency Acquire new products lines …ex. AT&T – cable TV, internet access, telephone service Eliminate the competition…ex. Royal Caribbean bought Celebrity Cruise Lines in 1997/ Staples and Office Depot Lose its corporate identity … ValuJet merged with AirWays to form AirTran Holdings Corp.

Types of Mergers Horizontal Merger: when two or more firms that produce the same kind of products join forces. Wachovia is now Chase Vertical Merger: when firms involved in different steps of manufacturing or marketing join together

Conglomerates When a corporation becomes so large through mergers and acquisitions. A Conglomerate is a firm that has at least four businesses, each making unrelated products, non of which is responsible for a majority of its sales. Diversifications (putting all their recourses together) main reason for conglomerate mergers.

It researches, develops, and manufactures high- technology products in numerous areas, including HVAC, helicopters, aircraft engines, elevators and escalators, fire and security, building systems, and industrial products…. GE Fortune 500 #4

Multinationals World’s largest corporations that has manufacturing or service operation in a # of different countries. They help facilitate the rapid spread of technology and provides global economic benefits Can be conglomerates too EX: Costco : Japan, Taiwan, Australia, Canada, Mexico

Other organizations Non-Profit Organization- operates like a business but does not seek financial gains for its owners.

Cooperatives 3 types: Consumer, service, and producer