1. Business Organizations
Holt Economics
4/23/2018
CHAPTER 7
Business Organizations
SECTION 1: Sole Proprietorships
SECTION 2: Partnerships
SECTION 3: Corporations
SECTION 4: Other Forms of Organizations
Chapter 7

2. Objectives: Sole Proprietorships SECTION 1
What are the advantages of establishing a sole proprietorship?
What are the disadvantages of establishing a sole proprietorship?

3. Advantages to a sole proprietorship:
SECTION 1
Sole Proprietorships
Advantages to a sole proprietorship:
easy to start up
full control of the business by the owner
exclusive rights to profits by the owner

4. Disadvantages to a sole proprietorship:
SECTION 1
Sole Proprietorships
Disadvantages to a sole proprietorship:
unlimited liability by the owner
sole responsibility of the
owner to operate the business
limited growth potential for the business
lack of longevity of the firm

5. Objectives: Partnerships SECTION 2 How do general partnerships
and limited partnerships differ?
What are the advantages of organizing a partnership?
What are the disadvantages of organizing a partnership?

6. Differences between general partnerships and limited partnerships:
SECTION 2
Partnerships
Differences between general partnerships and limited partnerships:
General partnerships:
Partners have equal decision-making authority.
Each partner has unlimited liability.
Limited partnerships:
Partners join as investors.
Partners have in inactive role in decision making.
Partners have limited liability.

7. Advantages of a partnership:
SECTION 2
Partnerships
Advantages of a partnership:
easy to form
allow specialization
lets partners share decision making
shares business losses between partners

8. Disadvantages of a partnership:
SECTION 2
Partnerships
Disadvantages of a partnership:
unlimited liability by partners
potential for conflict among partners
lack of business longevity

9. Objectives: Corporations SECTION 3
How is a corporation formed, and what are the characteristics of a corporation?
How is a corporation organized?
How do stocks and bonds differ?
What are the advantages and disadvantages of organizing a corporation?

10. To form a corporation: Corporations SECTION 3
Submit an application for the articles of incorporation and obtain a corporate charter.

11. Information required by the articles of incorporation:
Corporations
SECTION 3
Information required by the articles of incorporation:
the name and purpose of the proposed corporation
the address of the corporate headquarters
the method of fundraising to be used by the corporation
the amount of money the corporation expects to raise
the names and addresses of the major corporate officers
the intended life of the corporation

12. Characteristics of a corporation:
SECTION 3
Corporations
Characteristics of a corporation:
legally distinct from its owners
treated as an individual—can own property, hire workers, pay taxes, sue and be sued, and make and sell products

13. Corporate structure: Corporations SECTION 3
sometimes owned by shareholders
headed by a board of directors to make decisions
run by corporate officers—CEO, president, vice presidents, etc.—who carry out decisions made by the board
made up of department heads and other employees to perform day-to-day tasks

14. Differences between stocks and bonds:
SECTION 3
Corporations
Differences between stocks and bonds:
Stocks:
represent ownership of
the firms
issued as shares
Bonds:
used to raise money
issued as a certificate in exchange for money borrowed from an investor

15. Advantages of organizing a corporation:
SECTION 3
Corporations
Advantages of organizing a corporation:
limited liability
separation of ownership from management
ease of raising capital
longevity

16. Disadvantages of organizing a corporation:
Corporations
SECTION 3
Disadvantages of organizing a corporation:
costly and difficult to obtain a corporate charter
number of government regulations to follow
slow decision-making process

17. Objectives: SECTION 4 Other Forms of Organizations
How do vertical combinations differ from horizontal and conglomerate combinations?
Why might a business owner decide to open a franchise?
What is the customer’s role in a cooperative?
How does a nonprofit organization differ from other types of business organizations?

18. SECTION 4
Other Forms of Organizations
Difference between vertical combinations and horizontal and conglomerate combinations:
Vertical combinations—two or more companies involved in different production phases of the same good or service
Horizontal combinations—two or more companies produce the same good or service
Conglomerate combinations—two or more companies produce unrelated products

19. Vertical Combination in History
United States Steel Corporation, 1901
Andrew Carnegie
Merged two or more companies involved in different production phases of the same good or service
Combined companies that owned
ore deposits, iron mines, steel mills,
railroads, and shipping lines
Today = USX 10 % of all
US manufactured steel

20. Horizontal Combination in History
Standard Oil
John D. Rockefeller
Merged two or more companies producing the same good or service
“oil refining”
Later broken up as a “trust”

22. Benefits of opening a franchise to a business owner:
SECTION 4
Other Forms of Organizations
Benefits of opening a franchise to a business owner:
A business owner can reduce the overall costs associated with starting a business because:
employee training is often provided by parent company
advertising is sometimes paid for by parent company
it can use the parent company’s name

23. The customer’s role in a cooperative:
SECTION 4
Other Forms of Organizations
The customer’s role in a cooperative:
owns a share in the business
shares the expense of running the business

24. SECTION 4
Other Forms of Organizations
Differences between a nonprofit organization and other types of business organizations:
not focused on financial gain
income not taxed by the government

25. CHAPTER 7
Wrap-Up
1. Why is a sole proprietorship the easiest type of business to establish?
2. How does forming a partnership solve many of the problems that are associated with sole proprietorships?
3. Compare stocks and corporate bonds. How do corporations raise money through stocks and bonds?
4. Legally, how is a corporation treated as an individual?

26. CHAPTER 7
Wrap-Up
5. Explain how vertical combinations differ from horizontal combinations. Describe how Andrew Carnegie created a vertical combination.
6. How do nonprofit organizations differ from other forms of business organizations?