Business Organizations

Formed to carry out commercial enterprises Company or firm Sole Proprietorship= managed by one individual (75 % of all businesses)

The Single Entrepreneur can… Start up with little paperwork Business license Site Permit to use a building as their facility Name of the Business has to be registered

Zoning Laws Cities and towns designate specified areas for business use and residential use Zoning laws can keep business owners from operating from their homes

Advantages of Sole Proprietor Profit Full Control Easy to Discontinue

Disadvantages to Sole Proprietor Personal Liability (repay all loans that were used to start up the business) (pay wages, or get work done yourself) Limited Access to Resources (pay for new equipment out of pocket) Lack of Permanence (difficult to find lasting workers or experienced workers)

Partnerships Two or more persons agree on a division of labor and profits 3 types of partnerships General-share equally, responsibility and liability (doctors, lawyers, accountants)

Partnership Types Cont. Limited-only one partner has personal unlimited liability Remaining partners only contribute money and do not actively manage the business Limited Liability Partnership- all partners are limited partners, which limits their liability if for example their partner makes a mistake

Advantages of Partnerships Ease of start-up Articles of Partnership (the agreement of the partnership) Uniform Partnership Act- establishes rules for partnerships that don’t create their own articles (profit and loss management, shared management responsibilities)

Advantages Cont. Shared Decision making and specialization Larger pool of capital because of greater number of assets Little government regulation Taxation-business itself does not pay taxes Partners pay taxes of their share of income that the partnership generates

Disadvantages of Partnerships Unlimited Liability- one partners actions can cause other partners to suffer (doctor sued for malpractice, all the doctors in the partnership stand to lose) Potential for Conflict-

Corporations A Corporation is an entity owned by individual stockholders each of whom faces limited liability for the firm’s debts. Corporations pay taxes, make contracts, engage in business, sue parties and get sued. 20 % of all US businesses 90% of all products sold in the nation

Types of Corporations Closely held corporations- stock is rarely traded, but passed within family members. Publicly held corporations- many shareholders who can buy or sell stock on the open market. Corporation owners (stockholders) elect a board of directors to make all major decisions

Advantages of Corporations Limited liability Transferable ownership Ability to attract capital Raise money by borrowing it (selling bonds) Bond-a formal contract to repay borrowed money with interest at fixed intervals Long life Owners don’t need special management skills because of the large number of owners and ability to hire experts

Disadvantages to Corporations Expense and difficulty of start up Double taxation (owners pay taxes on their income and the corporation income) Potential loss of control by the founders More legal requirements and regulations (monitored by the SEC)

To Start a Corporation… A certificate of incorporation is needed with: The corporate name Statement of purpose Length of time that the business will run Founders names Business headquarters address Method of fundraising Rules for corporation’s management

Mergers Horizontal mergers- join two or more firms comparing the same market with the same good or service Sprint and Nextel to Sprint Vertical Mergers- join two or more firms involved in different stages in producing the same good or service.

Conglomerates Firms buy companies that produce totally unrelated goods. Altria Group (Phillip Morris and Kraft Foods)

Multinational Corporation Corporations that operate in more than one country at a time Headquarters in one country and branches in another Must obey laws and pay taxes in each country in which they operate Provide jobs around the world Spread technology throughout the world

MNC’s Continued Jobs may provide better living standards for people in their country On the down side… Influence culture and politics in other countries Low wages and poor working conditions

Franchise A Semi-independent business that pays fees to a parent company In return the company is granted the right to sell a certain product or service in a given area Parent company is called the Franchiser Fast food chains

Advantages of Franchise Management training and support Standardized quality National advertising Financial assistance Centralized buying power (franchisers buy in bulk for all locations and share savings with all branches)

Disadvantages to Franchises High fees and royalties for right to company name Strict operating standards (hours of operation, dress code, etc.) Purchasing restrictions Limited Product Line

Cooperative Business organization owned and operated by a group of individuals for their shared benefit. Consumer Cooperatives-sell merchandise to their members at a lower cost Pass savings on to their member Examples: book clubs, compact disc clubs, Sam’s, Costco

Service Cooperative-provide a service instead of a good Service Cooperative-provide a service instead of a good. Health care, legal help, baby sitting are examples that are offered at reduced rates to their members Producer Cooperatives-agricultural marketing cooperatives that help members sell their products.

Non-Profit Organizations In the business of benefiting society Function like business organizations Do not generate profit Museums, hospitals, churches, American Red Cross, and many others Tax Exempt Operative with government support

Professional Organizations Work to improve the image, working conditions, and skill levels of people in particular occupations. National Education Association, American Bar Association, American Medical Association