Business Organizations What is a Sole proprietorship? a business owned and managed by a single a business owned and managed by a single individual individual most popular type of business in US – most popular type of business in US – about 75% US businesses about 75% US businesses since most are small, account for only about 6% since most are small, account for only about 6% US sales US sales

Advantages & Disadvantages ? Advantages : ease of starting up ease of starting up full control full control earns all profit earns all profit Disadvantages : lack of permanence lack of permanence limited access to resources, capital, & labor limited access to resources, capital, & labor unlimited liability unlimited liability

Characteristics of sole proprietorships

What is a partnership? a partnership is a business organization owned by two or more people a partnership is a business organization owned by two or more people In US -about 7 % of all businesses, In US -about 7 % of all businesses, 10% of all income 10% of all income General partnership – partners share equally in responsibility and liability General partnership – partners share equally in responsibility and liability Limited partnership – one partner has control and liability – others contribute $ and share profits Limited partnership – one partner has control and liability – others contribute $ and share profits Limited liability partnership- all partners Limited liability partnership- all partners are limited from personal liability in certain situations are limited from personal liability in certain situations

Advantages : Ease of start up Ease of start up shared decision making & responsibility shared decision making & responsibility -- different strengths and skills -- different strengths and skills more resources, capital more resources, capital Disadvantages: Disadvantages: unlimited liability unlimited liability potential for conflict potential for conflict split profits split profits

What is a corporation? A corporation is a larger business owned by individual stockholders Stocks – share of ownership Stockholders have limited liability for business debts – can only lose what was invested A corporation is a legal entity – must pay taxes, can enter into contracts & lawsuits

How are corporations structured? Stockholders elect a board of directors Board makes important decisions & appoints corporate officers who are in charge CEO – chief executive officer (like the president of the corporation) Corporations raise money by selling stock Can borrow money by selling bonds

Advantages of corporations Investment capital – $$ from stocks, bonds Investment capital – $$ from stocks, bonds Stock owners have limited liability – can only lose what they put in Stock owners have limited liability – can only lose what they put in Can out-live original founders Can out-live original founders (ex- Walt Disney corp) (ex- Walt Disney corp)

Disadvantages of corporations Double tax – corporations pay income tax & stockholders pay personal income tax on money earned through stocks More difficult & expensive to start More government regulation Founders can lose control of company to large stockholders Decisions not always made in best interest of stockholders

What are mergers? Horizontal mergers Combine two or more firms in the same market Examples: - Standard Oil – Rockefeller’s oil monopoly - Diamler Benz & Chrysler  Diamler Chrysler - Exxon/Mobil - Disney & Miramax - others…..???

Vertical mergers Combine two or more firms involved in different stages of production for the same good or service Examples: - Carnegie Steel – Carnegie owned iron mines, steel manufacturing plants, railroads & shipping - Time Warner Cable & Turner Corp - Disney & ABC

What is a conglomerate?? Conglomerate – combines companies producing unrelated products or services Examples: - Johnson & Johnson - Proctor & Gamble - 3M

What is a franchise? A semi-independent business that pays fees to a company in return for exclusive rights to sell certain products or services in an area ….Kinda like a business with a mother company….. Examples???

What are some advantages and disadvantages of owning a franchise? Advantages: FFinancial assistance NNational advertising SStandardized quality CCentralized buying power TTraining and support

Disadvantages: HHigh franchising fees and royalties …what are royalties? …a percentage of the profits paid to the parent company SStrict operating standards and procedures LLimited product line

…and….some more stuff you should know……. Competition good for consumers …..why? keeps prices low, quality high Monopoly a single seller dominates a market limits competition FTC – Federal Trade Commission – watches mergers – can not limit competition Anti-trust laws -- against monopolies