Business and Labor
Chapter 22
1st Type of Business: Proprietorships
• -The most common form of business organization in
the US is the *sole proprietorship, or proprietorship- a
business owed and operated by a single person.
• -Structure- a proprietorship is the easiest form of
business to set up.
• -Advantages- the proprietor has full pride in owning
the business, receives all the profits, and has no
“higher-up” person to answer to.
• -Disadvantages- the owner is financially responsible for
all and any problems related to the business, known as
*unlimited liability.
• -Sole proprietors find it difficult to raise *financial
capital- the money needed to run a business or enable
it to grow larger.
• 2nd Type of Business: *Partnership- is a business
owned by two or more people. There are fewer
partnerships than any other form of business.
• -Structure- when they start a business, partners draw
up a legal agreement called *articles of partnership.
This identifies how much money each will contribute
and what role each will play in the business.
• -It also clarifies how they will share profits or losses,
and how to break up the business if they want to close
it down.
• -Advantages- b/c there are multiple owners,
partnerships can usually raise more money.
• -Disadvantages- are that the legal structure is complex,
when a partner is added or removed, a new agreement
has to be made.
• -Owners have *unlimited liability, meaning that each
owner is fully responsible for all the debts of the
partnership.
3rd Type of Business: *Corporation- is a business recognized by
the law that has many of the rights and responsibilities of an
individual.
• -A corporation can do anything a person can do- own
property, pay taxes, sue or be sued, but it can not vote.
• -One-fifth of all businesses are corporations.
• -Structure- someone who wants to start a corporation must
get a *charter- a govt document granting permission to
organize. (It has the name, address, and other features of the
business on it.)
• -A charter also specifies the amount of *stock, or ownership
shares of the corporation, that will be issued.
• -The people who buy the stock are known as *stockholderswho become owners of the corporation. Corporations use
money from selling stock to run the business.
• -The shareholders elect a *board of directors to act on their
behalf. The board hires managers to run the corporation on a
daily basis.
• -Advantages- the ease of reusing financial capital.
• -If it wants to expand, it can sell new shares of stock to get the money.
• -Also find it easier than other types of businesses to borrow large sums of
money.
• -Corporations can grow to be huge, employing thousands and carry out
business worldwide.
• -Another advantage is that the board of directors can hire/fire professional
managers to run the business.
• -Ownership of a corporation can be easily transferred by selling stock.
• -A final advantage of the corporation is the *limited liability- where only
the corporation, not the owners, are responsible for the debts of the
corporation.
• -Unlike the proprietorship or the patnership, you would be liable for the
company’s debts.
• -Disadvantages- often expensive and complex to set up, business owners
have very little say in the management of the business.
• -Corporations are also subject to more regulation by govt than other
forms. They must release certain reports on a regular basis, giving
detailed information about the company.
• -Finally, stockholders are subject to *double taxation, or paying taxes
twice on corporate profits.
• -First the corporation pays taxes on its profit, then when the profits are
distributed to the shareholders; they have to pay income tax on those
earning.
• Other Business Organizations
• -Other organizations operate on a * “not-for-profit”
basis.
• -A nonprofit organization operates in a business like
way to promote the interests of its members.
(Churches, hospitals, and social service agencies)
• -Another example of a nonprofit organization is the
*cooperative- a voluntary association of people formed
to carry on some kind of economic activity that serves
to benefit its members.
• -Producers, like consumers, can also have cooperatives,
where it helps members promote or sell their products.
• *Labor Unions- are groups of workers who
band together to have a better chance to
obtain higher pay and better working
conditions. (14% of Americans belong to
labor unions.)
• Types of Unions
• There are 2 types of labor unions- craft/trade
unions and industrial unions.
• How are Unions Organized
• -Operate on three levels: the local union, the national or
international union, and the federation.
• Local Union- is comprised of the members of a union in a
factory, company, or geographic area.
• National Unions- are individual craft or industrial unions
that represent local unions nationwide.
• -National unions send organizers to help employee’s
campaign to set up local unions. They provide lawyers and
other staff members to help negotiate contract b/t a local
union and a particular company.
• -Some of the largest unions are the United Automobile
Workers (UAW) and United Steelworkers of America
(USWA).
• At the federation level is the *AFL-CIO, formed in 1955 by
the merger of the American Federation of Labor and the
Congress of Industrial Organizations.
• -It represents more than 13 million working men and
women nationwide.
• Union Arrangements
• *Closed Shop- means that a worker had to belong to the union in
order to be hired by a company. (More common in the past)
• *1947 Taft-Hartley Act- made this illegal for any company that
makes goods that are sold in the states other than the state in
which the company is located.
• *Union shop- more common today- companies can hire nonunion
people, but those workers must join the union once they begin
working.
• -22 states have passed the *right to work laws, which prevent
unions from forcing workers to join.
• *Modified union shop- workers do not have to join a union after
they are hired but can if they want to.
• -A union can not be brought into any workplace unless a majority of
the workers are in favor of it.
• *The National Labor Board (NLRB)- is the govt agency that makes
sure union elections are carried out fairly and honestly.
• Negotiations
• -Once workers choose to be represented, the
union carries out *collective bargaining- where
officials from both sides meet to discuss the
terms of the workers new contract.
• -Each contract covers a few years.
• -Negotiations focus on wages, benefits, hours of
the workday, and holidays.
• -At times they might have to call for outside help
during negotiations.
• *Mediation- where they bring in a third party
who tries to help them reach an agreement.
• *Arbitration- where a third party listens to both
sides and then decides how to settle the
disagreement.
• Labor-Management Conflict- unions and
management can use different measures to try to
pressure the other side to accept their position.
• *Strike- where all workers in the union refuse to
go to work. They often picket outside the
business with signs explaining what the strike is
about.
• *Lockout- the strongest tool used, where the
company blocks workers from entering its
building until they agree to accept its contract
terms.
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Section 3: Businesses in our Economy
-Most are consumers, employers and producers
The Responsibilities of Business
-To the consumers- to sell a good product.
-To the owners- the business must reveal its
information to provide investors with full disclosure
before they choose to invest, or continue to invest, in
the company. This is called *transparency.
• -To the employees- business must give their employees
a safe workplace and treat all workers fairly and
without *discrimination.
• -To the community- more businesses are emphasizing
their *social responsibility- the obligation they have to
pursue goals that benefit society as well as themselves.