Transcript Business Organizations

Chapter 8: Business
Organizations
Mrs. Cohen
What is a business
organization?
A business organization is an establishment
formed to carry on commercial enterprise.
Key Terms
Business License- Authorization to start a business
issued by the local government.
Zoning Law- Law in a city or town that designates
separate areas for residency and for business.
Liability- The legally bound obligation to pay debts.
Fringe Benefit- Payment other than wages or salary.
Diversification- Spreading out investments ti reduce
risk.
Types of Business
Organizations
•Sole Proprietorship
•Conglomerate
•Partnerships
•Corporation
•Mergers
•Multinationals
•Franchise
•Cooperative
Sole
Proprietorships
Sole Proprietorship
• A business owned and managed
by a single individual
• Individual earns all the profits and
is responsible for all the debts
• Most popular business
organization in the US-75% all
businesses in US
Sole Proprietorship
• Advantages:
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Simple to establish
Almost anyone can establish
Total control of business
Least regulated business form, however
must abide by some government regulation
– Easy to discontinue or end business
– Need to obtain:
• Business license
• Site Permit
• Business Name
Sole Proprietorship
• Disadvantages:
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High degree of responsibility
Unlimited personal liability
Limited access to resources/capital
Limited skills (education, training, etc.)
May have to turn down work due to limited
human capital
– Can be personally and financially
exhausting
– A limited life-when owner dies or shop
closes the business ceases to exist
Conglomerate
What is it?
A conglomerate occurs when
firms buy other companies that
produce totally unrelated goods or
services (three or more
businesses).
Conglomerate Mergers
• Result from 1 corporation buying
another in a completely different
industry
• Corporation X buys Corporation Y to
add to its financial assets & overall
profits
• X may absorb Y or allow Y to operate
independently as a subsidiary with X
taking Y’s profits
Partnerships
Partnerships
• A partnership is a business organization
owned by two or more persons who agree
on a specific division of responsibilities and
profits.
• Three categories: general partnerships,
limited partnerships, and limited liability
partnerships
Partnerships
• Advantages:
– easy and inexpensive to establish
– no written agreement required (however it
is advised), & little government regulation,
shared decision making and specialization,
larger pool of assets, and no additional
taxation
• Disadvantages:
– Potential for conflict
– Many of the same disadvantaged as sole
proprietorships
– Unlimited liability
General Partnerships
• Most common type of partnership
• Both partners are equally liable
• Examples:
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Most doctor offices
Lawyers
Accountants
Farms
Etc.
Limited Partnership
• Only one partner is required to be a
general partner (unlimited liability)
• The remaining partners contribute only
money-and only can lose amount
invested
• Main advantage is being a general
partner of the business
• Drawbacks: the extent of liability
Limited Liability Partnership
• New type of partnership
• An LLP functions like a general partnership,
except that all partners are limited from
personal liability in certain situations: such as
another partner's mistakes.
• Only certain types of businesses are allowed to
register as LLPs:
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Attorneys
Physicians
Dentists
Accountants
Corporations
Corporations
• Legal entity, or being, owned by individual
stockholders, each of whom faces limited liability
for the firm's debts
• Most complex business organization
• Stockholders own stock, a certificate of
ownership in a corporation-stockholders are part
owners
• Corporation pays taxes, may engage in business,
make contracts, sue others, and get sued
• 20% of all US businesses-90% of all products
sold in US are from corporations
• 70% of nation’s income comes from corporations
Corporation
• Closely held corporations-corporations
held within families (privately held
corporations)
• Publicly held corporations- has many
shareholders and they sell stocks on
the open market (Stock exchanges)
• Corporations have a board of directorsmake all major decisions for the
corporation
Corporation
• Disadvantages:
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Expense and difficulty to start-up
Double taxation
Potential loss of control by the founders
More legal requirements and regulations
• Advantages:
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Limited liability for owners
Transferable ownership
Ability to attract capital
Long life
More potential for growth
Multinational
Corporations
Multinational Corporations
• A corporation 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
• 2000-63,000 multinational firms existed
with 690,000 foreign branches
• $3 trillion in worldwide assets
Multinational Corporations
• Advantages:
– Provide jobs and products all over the world
– Spread new technologies and production across the
globe
– Increase Standard of Living in poorer countries
• Disadvantages:
– Can influence the culture and politics in the countries
in which they operate
– Concerns about low wages and poor working
conditions in third world countries
Mergers
What is it?
• The union of 2 or more
commercial interests or
corporations
• Takes place when 1 company
acquires another or when 2 join to
form a new company
Horizontal Merger
• One corporation combines with another
in the same industry
• Ex. Chrysler bought American Motors
in the 1980’s
– Jeep & Eagle vehicle lines & production
facilities were added to the Chrysler line
Effects of Horizontal
Merger
• Increase the market share of the
combined firm; competition will be
reduced
• Generally prohibited except in
cases where 1 participant in the
merger is near bankruptcy
Vertical Mergers
• A corporation buys another in a related
phase of its business
• Saves $ & adds to productivity
• Combine operations that go into
making the main product
• Ex. Carnegie built Carnegie Steel by
buying mines & RR’s
Effects of Vertical
Mergers
• Increase efficiency
• Provide guaranteed source of supply
• Enable the streamlining of activities to
the special requirements of the final
product
• Force other sellers out of business
Franchises
Franchise
• A semi-independent business that
pays fees to a parent company
and in turn is granted exclusive
tight to sell a certain product or
service in a given area
• Parent companies are called
franchisers-franchisers develop
the products and the business
systems
Franchise
• Advantage:
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Built-in reputation
Management and training
Standardized quality
National advertising programs
Financial assistance
Centralized buying power
• Disadvantage:
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High franchise fees and royalties
Strict operating standards
Purchasing restrictions
Limited product line
Top U.S. Franchisers
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Subway
McDonald’s
7-Eleven
Burger King
Taco Bell
Coverall
Cleaning
Concepts
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KFC
Jackson Hewett
Pizza Hut
Dunkin Donuts
Jazzercise
Jiffy Lube
GNC Franchising
Cooperative
Cooperative
• A business organization owned and operated by
a group of individuals for their shared benefit
• Three main categories: consumer or purchasing
cooperatives; service cooperatives; and producer
cooperatives
• The main benefits of cooperatives are that
members can obtain goods/services at
discounted prices and when selling g/s they can
get the highest prices possible
Nonprofit
Organization
Nonprofit Organizations
• Function much like a business organization but
do not operate for the purpose of generating
profit
• Exempt from income taxes
• Many operate with partial government support
• Provide services rather than goods
• Businesses that benefit society
– Examples:
• Museums, Red Cross, hospitals, churches, synagogues
YMCA, labor unions,etc.
Other Nonprofit Organizations
• Professional Organizations-nonprofit organization
that works to improve the image, workings conditions,
and skill levels or people in particular occupations
• Business Associations-nonprofit organization that
promotes collective business interests for a city,
state, or other geographical area, or for a group of
similar businesses
• Trade Associations-nonprofit organizations that
promotes the interests of a particular industry
• Labor Unions-organized group of workers whose
aim is to improve working conditions, hours, wages,
and fringe benefits.