1. Business Organizations
Chapter 8
Business Organizations

2. Types of Organizations
Business Organization – establishment formed to carry on commercial enterprise
Three Types
Sole Proprietorship
Partnerships
Corporations

3. Sole Proprietorships
A business owned and managed by a single individual

4. Advantages of Sole Proprietorships
Easy to Start-Up
Very little paperwork and legal expense
Minimal requirements
Authorization – must obtain a business license
Site Permit – permission to use a building
Pick a business name

5. Advantages of Sole Proprietorships
Relatively Few Regulations
Sole proprietorships are the least regulated businesses
Major regulation is the city zoning laws – city determines what areas will accommodate each kind of building

6. Advantages of Sole Proprietorships
It’s all mine!
Sole Receiver of Profit
Full Control
Easy to Discontinue

7. Disadvantages of Sole Proprietorships
Unlimited Personal Liability
Limited Access to Resources
Lack of Permanence
I’ve lost everything!

8. Partnerships
A business organization owned by two or more persons who agree on a specific division of responsibilities and profits

9. Three Kinds of Partnership
General Partnership – Equal share of responsibility and liability among partners
Usually doctors, lawyers, accountants

10. Three Kinds of Partnership
Limited Partnership – one partner has unlimited personal liability, others contribute money
Could be any kind of business

11. Three Kinds of Partnership
Limited Liability Partnership (LLP) – all partners are limited from personal liability
States must grant permission to be an LLP – usually for doctors, lawyers, and dentists

12. Advantages of Partnerships
Easy to Start
Articles of Partnership – legal agreement of how to share profits and losses

13. Advantages of Partnerships
Easy to Start
Without articles of partnership, the business falls under the Uniform Partnership Act

14. Advantages of Partnerships
Shared Decision Making and Specialization
Large Pool of Capital
Taxation – no special taxes on the business

15. Disadvantages of Partnerships
;~[
Unlimited Liability (except with an LLP)
Potential for Conflict

16. The Main Event
Sen. Arlen Specter vs.
Sen. Ted Kennedy

18. Corporations, Mergers, Multinationals
Large entity owned by individual stockholders who all share limited liability for the firm’s debts
Stock – also called shares – a portion of ownership in a corporation

19. Corporations
Corporations are a separate legal entity from the stockholders who own it – so they’re taxed twice!

20. Two Types of Corporations
Closely-Held Corporations – majority of stock is passed down through the family

21. Two Types of Corporations
Publicly Held Corporations – many shareholders buying stock on the open market

22. Corporate Structure
Elect

23. Advantages of Incorporation
Advantages to the investor:
Limited liability
Shares are transferable

24. Advantages of Incorporation
Advantages to the corporation
Higher potential for growth
Long lasting
Nearly unlimited capital
Selling bonds

25. Disadvantages of Incorporation
Difficulty and Expense of Start-Up
Double Taxation
Loss of Control
High Regulations

26. Combining Corporations - Mergers
Horizontal Mergers – join two or more firms competing in the same market +

27. Combining Corporations - Mergers
Vertical Mergers – join two or more firms involved in different stages of producing the same good +

28. Combining Corporations - Conglomerates
Firms that buy other companies that produce totally unrelated goods

29. Multinationals
Corporations that operate in more than one country at a time
They must pay taxes and obey the laws of each country they operate in
Many have bigger budgets than the country they are in

30. Business Franchises
Semi-independent business that pays fees to a parent company

31. Business Franchises
In return for the fees, the business gets exclusive rights to sell the parent company’s product in a certain area

32. Advantages of Opening a Franchise
Management Training
Standardized Quality
National Advertising Program
I’m the same everywhere!

33. Advantages of Opening a Franchise
Financial Assistance
Centralized Buying Power – the parent company buys in bulk to save everyone money

34. Disadvantages of Opening a Franchise
High Franchising Fees – parent company gets a share of the profit called a royalty
Strict Operating Standards

35. Disadvantages of Opening a Franchise
Purchasing Restrictions
Limited Product Line

36. Cooperative Organizations
A business organization owned and operated by a group of individuals for their shared benefit

37. Three Kinds of Co-op’s
Consumer Cooperatives – sell merchandise to members at reduced prices
Often require members to work or pay a membership fee

38. Three Kinds of Co-op’s
Service Cooperatives – same as consumer co-op, but it provides a service
Producer Cooperatives – agricultural co-ops that help farmers sell their product

39. Nonprofit Organizations
Do not work for profit, but rather to help people
Exempt from income taxes

40. Nonprofit Organizations
Professional Organizations – improve the image, working condition, and skill level of people in a profession
Business Association – promote the business interests of a geographical area (like a city or a state)

41. Nonprofit Organizations
Trade Associations – promote the interest of an industry
Labor Unions – organized group of workers that aim to improve conditions, hours, and wages