Business Organizations

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

Sole Proprietorships

A business owned and managed by a single individual


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

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

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

Disadvantages of Sole
Proprietorships

Unlimited
Personal Liability

Limited Access to Resources

Lack of
Permanence

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

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

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

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

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

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

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

Disadvantages of Partnerships

Unlimited
Liability
(except with an LLP)
:-@!

Potential for
Conflict
;~[

Sen. Arlen Specter vs.
Sen. Ted Kennedy

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

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

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

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

Corporate Structure
Stockholders
Elect
Board of Directors
CEO
COO
Other Employees

Advantages of Incorporation

Advantages to the investor:
•Limited liability
•Shares are transferable

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

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

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

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

Combining Corporations -
Conglomerates

Firms that buy other companies that produce totally unrelated goods
GE
GE Insurance NBC GE Plastics


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

Business Franchises

Semiindependent business that pays fees to a parent company

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

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

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

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

Disadvantages of Opening a
Franchise

Purchasing Restrictions

Limited Product Line

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

Three Kinds of Coop’s

Consumer Cooperatives – sell merchandise to members at reduced prices
•Often require members to work or pay a membership fee

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

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

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)

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