Chapter 5
Business Organization
5-1 Business in the U.S. Economy
5-2 Forms of Business Ownership
5-3 Organizational Structure for
Businesses
Introduction to Business
© Thomson South-Western
THE CHANGING U.S. JOB MARKET
 Employment data
 Baby Boomers dominate market since 1960.
 The average age of U.S. workers in 2010 will be
over 40.
 Mini-boom will cause the 16-24 age grow to grow
faster than the overall labor force for first time in
25 years.
 Higher employment rates for: Asian, Hispanic,
and African American Workers.
 White workers make up 75% of job market – will
decline to 70% by 2012.
 Biggest change in employment – participation of
women in workforce.
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 Pressures on employees
 Economic stress led to downsizing by
companies
 Increase of contingent workers
 Contingent worker is one who has no explicit
or implicit contract for long term employment –
also known as temporary employment
 The number of contingent/temporary workers
will double in ten years.
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BUSINESS AND THE ECONOMY – all
businesses worldwide produced
$32 trillion of goods & services
 Size of businesses
 Most U.S. businesses are small.
 The largest number have no
employees at all. Almost 80% of
businesses have no employees other
than owner.
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NUMBER OF
EMPLOYEES
IN U.S.
BUSINESSES
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Roles of Business
Employment
Wages – employees purchase goods & services
Profits – used to compensate owners & investors
Pay Taxes
Most Important Role – to make and distribute
products & services needed by consumers,
government and other businesses.
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Impact on a Community
 Pays wages to workers
 Buys goods & services from other
business in area
 Housing, auto, food, entertainment.
Successful businesses contribute to more
jobs, more income, and a thriving
economy in the communities where they
operate.
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BUSINESS ACTIVITIES
 Generating ideas
 Raising capital
 Employing and training personnel
 Buying goods and services - all
businesses buy goods & services.
 Marketing goods and services
 Maintaining business records
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TYPES OF BUSINESSES
 Producers
 Intermediaries
 Service businesses
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Producers
 Create the products and services used by
individuals and other businesses.
 Responsible for using resources to make
something that is needed by others.
 Extractor – takes resources from nature for direct
consumption or for use in developing other
products.
 pump oil, mine coal, cut timber
 Manufacturers – get supplies from other
producers and convert them into products. Sell
own products to consumers and other
businesses.
 Start producers and go to manufacturers
Example – cereal manufacturer, automobiles
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Intermediaries
 Intermediaries – businesses involved
in selling the goods and services of
producers to consumers and other
businesses.
 Most common types of intermediaries
are retailers and wholesalers.
 Example – grocery store
 Specialized intermediaries – transportation
companies, advertising agencies, storage
centers, sales offices, and data processing
centers.
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Service Businesses
 Service Business – carries out activities
that are consumed by its customers.
 Do not offer products for sale
 Fastest growing part of economy
 60% of all U.S. employment is in serviceproducing business
 Services can be professional/technical
services, example – internet service
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BUSINESS OWNERSHIP
 Proprietorship
 Partnership
 Corporation
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FORMS OF OWNERSHIP
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Proprietorship
 Business owned and run by just one
person.
 Easiest form of business to start
 Sole control
 Owner receives all profits
 Responsible for all debts
 Fails – no shelter from creditors
 Creditors can take any money or assets
to pay business debts.
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Partnership
 Owned and controlled by 2 or more
people who have entered into a written
agreement.
 Easy to start
 Responsible for business decisions
 Share investments & profits based on
terms of partnership agreement.
 Each partner is liable for all debts of
business if it should fail.
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Corporation
 Separate legal entity formed by documents
filed with state.
 Owned by 1 or more shareholders
 Managed by Board of Directors
 several owners invest by purchasing stock
 More difficult
 Owners have no direct involvement
 No access to profits unless the Board of
Directors approve it.
 Liability of stockholders to amount invested.
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CHOOSING A FORM OF BUSINESS OWNERSHIP
 Choosing a proprietorship
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
Freedom
Control
Easy to form
Do not need a business name
Do need government license
Tax advantages
 Taxed as personal income
 Business expenses used to reduce income
 Unlimited liability
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CHOOSING A FORM OF BUSINESS OWNERSHIP
 Choosing a partnership
 Partnership Agreement details rules and
procedures that guide ownership and
operation
 2 or more contribute to investment
 Each partner responsible for decisions
 Unlimited liability
 Business is dissolved if partner leaves or
dies.
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CHOOSING A FORM OF BUSINESS OWNERSHIP
 Corporation
 Subject to more laws
 Difficult to form
 File Article of Incorporation – written legal document that
defines ownership and operating procedures and conditions
of business
 Must create corporate bylaws
 Name board of directors – who make financial decisions
 Issue shares of stock to investors
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Limited liability to money invested
Decision making is shared
More records and laws
Double taxed
 corporate tax on profit earned
 personal tax on individual earnings
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OTHER FORMS OF OWNERSHIP
 Specialized partnerships and corporations

LL Partnership
 Investors cannot lose more than amount invested
 Do not participate in day-to-day management of business
 Difficult and costly

Joint Venture
 Organized by 2 or more businesses to operate for a limited time and for a specific
project

S Corporation
 Small companies/limited liability

LLC or Limited Liability Company
 Provides liability protection for owners
 Similar to corporation with no articles of incorporation or bylaws

NonProfit Corporation
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Group that join to do some activity that benefits the public
Free from corporate income taxes
Must organize as a corporation
Meet government approval and approve purpose and operations
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OTHER FORMS OF OWNERSHIP
 Cooperatives
 Owned by members, serves their needs, and is
managed in their interest.
 Purchase goods/services cheaper
 Franchise
 Written contract granting permission to operate a
business to sell products and services in a set
way.
 Franchiser – the company that owns the product or
service and grants the rights to another business.
 Franchisee – the company purchasing the rights to run a
business
 Examples – Jiffy Lube, Century 21 Real Estate, Merry Maids
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DESIGNING AN EFFECTIVE BUSINESS
ORGANIZATION
 Setting direction
 Mission Statement – The direction for a
business. Reason the business exists and what it
wants to achieve.
 Goals – is a precise statement of results the
business expects to achieve. Goals are used to
define what needs to be accomplished and to
determine if the business is successful.
 Policies – guidelines used in making consistent
decisions
 Procedures – descriptions of the way work is to be
done.
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 Principles of effective organization
 Responsibility, authority, and accountability
 Responsibility – obligation to complete
specific work
 Authority – the right to make decisions about
how responsibilities should be accomplished
 Accountability – taking responsibility for
results achieved
 Unity of command – means there is a clear
reporting relationship for all staff of a business
 Span of control – number of employees who are
assigned to particular work task or manager.
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TYPES OF ORGANIZATIONAL
STRUCTURES
 Organizational Chart – is a diagram that
shows the structure of an organization.
 Functional organization structure – work is
arranged within main business functions such
as production, operations, marketing, and
human resources.
 Matrix organizational structure – work is
structured around specific projects, products,
or customer groups.
 Interesting and motivating
 Work with different people
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BUSINESS ORGANIZATION CHART
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Introduction to Business
© Thomson South-Western