CHAPTER 5
Business Organization
5-1 Business in the U.S. Economy
5-2 Forms of Business Ownership
5-3 Organizational Structure for
Businesses
5
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5-1
Business in the
U.S. Economy
Goals
38. Describe the changing status of U.S. employment
39. Discuss the role of business in the U.S. economy
40. Describe the three major types of businesses
5
2
Key Terms
 contingent worker
 producer
 intermediary
 service business
5
3
38. THE CHANGING
U.S. JOB MARKET
 Employment data
 Pressures on employees
5
4
Checkpoint >>
List several groups that will increase as a percentage of the
total U.S. workforce in the next decade.
Answer
 Younger workers (16–24 years of age)
 Asian-, Hispanic-, African-American groups
 Women
5
5
39. BUSINESS AND
THE ECONOMY
 Size of businesses
 Roles of business
 Impact on a community
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Percent of
Businesses by
Employee Size
Source: U.S. Census Bureau
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39. (continued) BUSINESS ACTIVITIES
 Generating ideas
 Raising capital
 Employing and training personnel
 Buying goods and services
 Marketing goods and services
 Maintaining business records
5
8
Checkpoint >>
What are the basic activities completed by all businesses?
Answer
 are generating ideas
 raising capital
 employing and training personnel
 buying goods and services
 marketing goods and services
 maintaining business records
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40. TYPES OF BUSINESSES
 Producers
 Intermediaries
 Service businesses
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Checkpoint >>
How does a manufacturer differ from an extractor?
Answer
 An extractor takes natural resources, such as oil or timber, for direct
consumption or for use in developing other products.
 A manufacturer takes resources supplied by others and converts them into
useable products.
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5-2
Forms of Business
Ownership
Goals
41. Understand the three major forms of business ownership
42. Determine when each form of business ownership is most
appropriate
43. Recognize other specialized business ownership forms
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Key Terms
 proprietorship
 partnership
 corporation
 partnership agreement
 articles of incorporation
 franchise
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41. BUSINESS OWNERSHIP
 Proprietorship~ Business owned and run by just
one person (Unlimited Liability)
 Partnership~ Business owned and controlled by
two or more people (Unlimited Liability)
 Corporation~ Separate legal entity formed by
documents filed with a state. Owned by one or more
shareholders and managed by a board of directors
(Limited Liability)
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Source: Internal Revenue Service
Forms of Ownership
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Checkpoint >>
What are the differences between the three main forms of
business ownership?
Answer
 Business forms differ in the ways in which decision-making and
investments are made and to whom liabilities are distributed.
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CHOOSING A FORM OF
BUSINESS OWNERSHIP
 Choosing a proprietorship~




Most businesses begin this way and remain
this way
Total control is with the owner
Easy to begin- only requires gov’t licenses
and/or permits
Tax advantage/disadvantage


ALL income is part of business and expenses can
often be written off to reduce income
ALL debts are owner’s responsibility (Unlimited
liability)
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42. CHOOSING A FORM OF
BUSINESS OWNERSHIP (continued)
 Choosing a partnership~


Can sometimes be formed by verbal agreement
BUT most of the time, a written partnership agreement
is prepared





Details the rules and procedures that guide ownership and
operations
Lists clearly the business name, investments, and partner
contributions
Shows how profits and losses will be divided among partners
Defines authority and responsibilities granted to each partner
States how the partnership can be dissolved
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Partnership (continued
 Advantages
 More people contribute to the investment in
the business
 More expertise
 Disadvantages
 Each partner is responsible for the decisions
of all other partners
 No protection of personal assets of each
partner
 Unlimited Liability
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CHOOSING A FORM OF
BUSINESS OWNERSHIP
(42. continued)
 Choosing a corporation~
 Not just an option for large businesses
 Increasing in popularity of small
businesses as well
 Subject to many more laws and are
more difficult to form
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Corporations (continued)
 Treated
as an “individual” by gov’t
 Must obey laws of the state and must
file ‘articles of incorporation’
Written legal document that defines
ownership and operating procedures
(corporate bylaws) and conditions
 A Board of Directors must be appointed
 Must issue shares of stock to investors

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Corporation (continued)
 Advantages~

Liability is limited to the amount of money
invested



Amount of debt of the business does not matter
People can invest in the business and receive
part of the profits without having to take part in
the day-to-day operations
Can be easily expanded
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Corporation (continued)
 Disadvantages~



Decision-making is shared among managers,
board of directors, and shareholders
Many records are required and more laws
regulate corporations than the other two forms
of business ownership
Business pays corporate taxes to the
government AND investors also pay taxes on
individual earnings from the business
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Checkpoint >>
Which form of business ownership is the most complex and
difficult to form?
Answer
 The corporation is more complex to begin than other business forms.
 Forming a corporation requires much more bureaucracy, is more subject
to government regulations, requires the organization of a board, and must
have clearly defined bylaws.
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43. OTHER FORMS
OF OWNERSHIP
 Specialized partnerships and corporations

Limited liability partnership


http://legal-dictionary.thefreedictionary.com/Limited+Liability+Partnership
Identifies some investors who cannot lose more than they
have invested, BUT they are not permitted to participate
in the day-to-day management of the business
Joint Venture
 Unique business organized by 2 or more
businesses to operate for a limited time for a
specific project
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43. OTHER FORMS OF BUSINESS
OWNERSHIP (continued)
 Specialized partnerships and corporations
(continued)
 S-Corporation http://www.irs.gov/businesses/small/article/0,,id=98263,00.html




For small businesses
Offers the limited liability of a corporation
All income is passed through to the owners based on their
investment and is taxed on individual earnings
Limited Liability Company (LLC)





http://www.irs.gov/businesses/small/article/0,,id=98277,00.html
Newer form of ownership
Combines partnership with corporation
Provides liability protection for owners
Simpler than a corporation
No articles or bylaws are needed
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43. OTHER FORMS OF BUSINESS
OWNERSHIP (continued)
 Specialized partnerships and corporations
(continued)
 Nonprofit
corporation
Joined to do something that benefits the public
 Education, health care, charity, the arts…
 Free from corporate income taxes
 Receive grants and donations from individuals
and businesses
 Must meet government requirements

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43. OTHER FORMS OF BUSINESS
OWNERSHIP (continued)
 Cooperatives
 Cooperative~
Owned by members and serves their
needs
 Two types:

 Consumers Cooperatives
 Business (Producer’s) Cooperatives
 http://www.youngzine.com/article/2012-
international-year-cooperatives
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43. OTHER FORMS OF BUSINESS
OWNERSHIP (continued)
 Franchises http://www.redhotfranchises.com/

Written contract granting permission to operate
a business to sell products and services in a set
way.
 Franchiser- company that owns the product or
service and grants the right to another business
 Franchisee- company that purchases the rights
to run the business
 Franchisee maintains day-to-day operations and
receives profits
 Pays fees and percentage of profits to
franchiser
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Checkpoint >>
What are the other specialized forms of business ownership?
Answer
 limited liability partnership
 joint venture
 S-corporation
 limited liability companies (LLC)
 nonprofit corporations.
 franchise
 cooperative
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Mini-Project
 Find and list five franchises that interest you using
www.redhotfranchise.com
5 pts
 For each franchise, answer the following questions:
25 pts
 How much liquid capital is needed to purchase the
franchise?
 Is training from the parent company provided?
 Provide a brief description of the franchise (what
the business does, their goals, mission,
competitive edge, and other activities, etc.).
30 pts total
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5-3
Organizational Structure
for Businesses
Goals
44. Understand important principles in
designing an effective organization
45. Compare alternative organizational
structures for businesses
5
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Key Terms (continued)
 Organization chart~

Diagram that shows the structure of an
organization, classifications of work/jobs, and
relationships among those classifications
5
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Business Organization Chart
5
34
45. TYPES OF ORGANIZATIONAL
STRUCTURES
 Functional organization structure
 Work is arranged within main business functions
such as production, operations, marketing, and
human resources


All people with related jobs work together
Advantages and Drawbacks
 Matrix organizational structure
 Work is structured around specific projects,
products, or customer groups


People with varied backgrounds are assigned together
because their expertise is required for the project or to
serve a customer
5
Groups may be temporary or long-term
35
44. DESIGNING AN EFFECTIVE
BUSINESS ORGANIZATION
 Setting direction

Mission Statement, Goals, Policies, and
Procedures
 Principles of effective organization

Responsibility, Authority, Accountability, Unity
of Command, and Span of Control
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36
Setting Direction
(Obj. 44 continued)
 Mission statement~
 Short, specific written statement of the reason a
business exists and what it wants to achieve.
 Goal~

A precise statement of results the business expects to achieve

Used to define what needs to be accomplished
 Policies~
 Guidelines used in making consistent decisions
 Procedures~

Descriptions of the way work is to be done
5
37
Principles of Effective Organization
(Obj. 44 continued)
 Responsibility (obligation to complete specific work),
Authority (right to make decisions about how responsibilities
should be accomplished), and Accountability (taking
responsibility for the results achieved)
 Unity of command (clear reporting relationship for
all staff of a business~ ‘chain of command)
 Span of control (the number of employees who
are assigned to a particular work task and manager)
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38
Checkpoint >>
What is the difference between a mission statement and a
goal?
Answer
 A mission statement states the purpose of existence for a business and
what it hopes to achieve.
 A goal is a more specific statement of what a business expects to achieve
and may be used to measure a business’ success.
5
39
Checkpoint >>
 What problems can result from the use of a functional
organizational structure?
Answer
 Employees in a functional organizational structure may tend to loose sight
of overall corporate goals.
 Workers tend to be limited to specific duties and may not see their
relationship to the organization as a whole.
 This can result in lack of interest and motivation over time.
5
40
Chapter 5-3 and Review
 Page 118


1-3 and
Choose 4 or 5
 Pages 120-123


1-23 and
Choose 1 from 24-31
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