1. Business and Labor
Chapter 22

2. Types of Businesses Sole proprietorship
Most common form of business organization
Business owned and operated by a single person
Easiest form of business to set up
Advantages
Owner receives all profits
Decisions on how to run the business can be made quickly
Disadvantages
Owner responsible for all problems related to business
Owner has unlimited liability, all personal assets of owner may be seized to pay debts
Hard to raise financial capital
Difficult to attract qualified employees, can’t offer fringe benefits (insurance, sick leave, etc.)

3. Types of Businesses Partnerships Owned by two or more people
Business partners bound by articles of partnership
Determine how much each member will contribute, what role each person has
How profits will be shared
How partners will be added or removed
Advantages
Multiple owners can raise more money
Owners do not pay corporate income tax
Each owner brings certain skills to help the business
Disadvantages
Legal structure is complex
Owners have unlimited liability

4. Types of Businesses Corporations
Has many of the rights and responsibilities of an individual
Can do anything a person can do (own property, pay taxes, get sued) except vote
20% of all businesses are corporations
Charter is a government document that grants them permission to organize
Specifies amount of stock that will be issued
Stockholders become owners of the corporation
Money received from selling stock is used to set up and run company
Stockholders elect a board of directors to act on their behalf
Board hires managers to run the company on a daily basis

5. Types of Businesses Advantages
Easy to raise financial capital (sell shares of stock)
Ability to raise capital allows corporations to grow huge
Many have economies larger than some countries
Board of directors can hire managers to run company and replace them if they fail
Ownership can be easily transferred by selling stock
Corporations have limited liability, if company fails individuals not liable for companies debts
Disadvantages
Expensive and complex to set up
Owners have little say in business because of stockholders
Subject to more regulation by government
Have to release financial reports to keep shareholders informed of business
Stockholders subject to double taxation (taxes on corporation and on shareholder earnings

6. Types of Businesses Other types of business organizations Non-profits
Uses surplus funds to promote interests of members (hospitals, churches and social service agencies)
Earnings not distributed to owners
Exempt from income and property taxation
Cooperatives
Voluntary organization that is formed for economic activity
Buy bulk goods on behalf of members
Farmers Cooperatives members sell crops directly to central markets

7. Corporations, Mergers and Multinationals
Corporate Combinations
Companies combine with other companies to create larger more efficient firms
Can sell goods at a lower price
Three types of mergers
Horizontal Merger
Two or more companies that compete in the same market and provide the same good or service
Try to improve efficiency, reduce costs and boost revenue
Monitored closely by the federal government so they do not create a monopoly
Vertical Merger
Companies involved in different stages of producing good or service
New firm can control all phases of production
Typically do not lessen competition
Conglomerate
Buy companies that produce unrelated goods
Have more that three businesses that produce unrelated products
One business earns a majority of the firms profits

8. Corporations, Mergers and Multinationals
Multinational Corporations
Produce goods throughout the world
Operate in more than one country at a time
Must obey laws and pay taxes in all countries where they operate
Many have operating budgets bigger than most governments
Advantages
Provide jobs
Spread technology
Help poorer nations improve their standard of living
Disadvantages
Have too much influence over culture and politics in countries where they operate
Working conditions are poor

9. Other Organizations Business franchise
Semi independent business that pays fees to parent company
In return it has the exclusive right to sell a certain product in a given area
Franchiser (parent company) develops products and works with local franchise to produce and sell product
Allows owners a degree of control and owners benefit from support of parent company

10. Other Organizations Advantages Come with a built in reputation
Management and training support
Standardized quality
owners follow certain rules and processes to guarantee product quality
National advertising
Financial assistance
Centralized buying power
buy materials in bulk to keep costs down
Disadvantages
High franchising fees and royalties
Royalties are a share of earnings
Strict operating standards
Must follow all rules in the franchise agreement
Purchasing restrictions
Limited product line
can only sell approved products

11. Labor Unions
Labor unions are groups of workers who band together to gain better pay and working conditions
14% of American workers belong to a union
Two types of unions
Trade unions- all workers perform the same skill (craft union)
Industrial unions- all workers in the same industry

12. Labor Unions
Organized labor operates at three levels- local, national and the federation
Local- members of a factory, company or geographic area
Deals with a company negotiating a contract and monitors the terms of a contract
National unions help set up local unions and to negotiate contracts between local unions and companies
Provides lawyers and staff to negotiate contracts for the entire industry
Federation level- AFL-CIO is a union that represents 13 million workers worldwide

13. Labor Unions
Some criticize unions for trying to control the labor supply
Some unions support the closed shop where a worker had to be a union member to be hired
1947 Taft-Hartley Act closed shops became illegal in any company that participated in interstate commerce
More common now is the union shop
Companies hire nonunion workers but they must join the union to begin working
Taft Hartley allows states to ban this activity
These states are called right to work states that prevent unions from forcing workers to join unions
Modified union shops workers can join union if they want to, but are not required to join
Union can’t be brought into a workplace unless a majority of workers vote for it
National Labor Relations Board oversees union activity

15. Labor Unions Union carries out collective bargaining
Officials from union and company meet to discuss terms of worker contacts (hours worked, wages, benefits)
When two parties can’t agree they try mediation
Third party comes in to help both sides reach an agreement
Some cases workers choose arbitration
Where third party decides how to settle the disagreement
Both parties agree in advance to accept what arbitrator decides
Unions and management use different tools to try to get other side to accept agreement
Workers can strike where all union workers refuse to work
Unions can encourage the public to boycott the business’ products
Companies can lockout workers until they meet their terms

16. Business in Our Economy
Section 3

17. Business in Our Economy
Businesses play many different roles in our economy
Consumers- purchase goods and services from other businesses (raw materials, office supplies, etc.)
Employers- provide jobs and pay workers
Producers- produce a wide variety of goods and services for consumption

18. Business in Our Economy
Responsibilities of Businesses
Responsibility to consumers
to make sure products are safe
To advertise truthfully
If they do not follow these rules government can step in and regulate the industry or pull the products from the market
Responsibilities to owners (and stockholders)
Especially important for corporations
To protect shareholders corporations release financial information regularly
One purpose of transparency is to provide investors with information to see if investment is worth the risk
Government can step in if companies are not honest

19. Business in Our Economy
Responsibility to employees
Give workers a safe workplace
Treat workers fairly without discrimination
1990 Americans with Disabilities Act keeps employees from discriminating on the basis of mental or physical disabilities
Responsibilities to the Community
Many businesses feel they have a social responsibility to pursue goals that benefit society as well as themselves
Many companies give money to charities or take an active role in their community