Business Organizations
Chapter 8
Standard 14:
• Students will understand that:
Entrepreneurs are people who take the risks
of organizing productive resources to make
goods and services. Profit is an important
incentive that leads entrepreneurs to accept
the risks of business
FOUR TYPES OF MARKET
STRUCTURES
HOMEWORK
Business Organizations
• A business organization is an
establishment formed to carry on a
commercial enterprise.
• In other words, a business organization is
a company, or firm.
Sole Proprietorship
• A sole proprietorship is a business owned and
managed by a single individual
• Owner is the company
Sole Proprietorship
Advantages
-
Disadvantages
Ease of start up
- Unlimited personal
Relatively few regulations
liability
Sole receiver of profit
- Limited access to
Full control
resources
Easy to discontinue
- Lack of LONGEVITY
Partnerships - 3 TYPES
• A partnership is a
business organization
owned by two or more
persons who agree on a
specific division of
responsibilities and profits
• 1. General partnership is
one in which the members
share equally in both
responsibility and liability
• 2. Limited partnership is
one in which only one
partner is a general
partner (the others
contribute only money)
3. LLP’S
• LIMITED LIABILITY PARTNERSHIPS
• LLP’S: ALL PARTNERS HAVE LIMITED
PERSONAL LIABILITY
• ATTORNEYS, ACCOUNTANTS,
DENTISTS, PHYSICIANS CAN
REGISTER AS LLP’S
Partnerships
Advantages
Disadvantages
- Ease of start up
- Shared decision making
and specialization
- Larger pool of capital
- Taxation –Individual pays
income tax but business
does not
- Unlimited liability for at
least 1 General Partner
- Potential for conflict
Corporation
• A corporation is any business or firm that is a
legal entity which is publicly owned and traded
through stock.
• A stock is a certificate of ownership in a
corporation
Corporation
Advantages
Disadvantages
-stockholders
-limited liability
-corporation
-many resources
Easy to raise capital
-longevity
-stockholders
-loss of control by owners
-double taxation
(dividends/capital gains)
-corporation
-difficulty and expense of
start-up
-more Gov. regulations
• Horizontal mergers: merger between two
companies selling similar or compatible
products – larger market share
• Vertical mergers: two companies that
bought and sold products merge - efficiency
• Conglomerates: when a corporation becomes
large by purchasing other corporations.
Think breakfast cereals
TYPES OF TRADED CORPS.
• PRIVATELY / CLOSELY HELD: SELL
STOCK TO SELECT FEW (FAMILY
MEMBERS, EMPLOYEES TO MOTIVATE
SALES
ONLY BOUGHT AND SOLD THROUGH THE
COMPANY – THINK: WAFFLE HOUSE
• PUBLICLY HELD: CAN BUY OR SELL
STOCK THROUGH A BROKER ON THE
OPEN MARKET (STOCK EXCHANGE, EX:
NYSE, AMEX, NASDAQ)
Organization
Description
Advantages
Disadvantages
Examples
SOLE
PROPRIETORSHIP
OWNED & MANAGED
BY SINGLE
INDIVIDUAL,
USUALLY SMALLER
CO’S,
REQUIRES: LICENSE,
REGISTER NAME,
STATE PERMIT,
75%
OWNER GETS ALL PROFIT,
EASY TO START UP OR STOP,
FEW GOV. REGS, FULL
CONTROL
UNLIMITED PERSONAL LIABILITY
(OWNER LEGALLY BOUND TO PAY
BUS. DEBTS), IF FAILS, OWNER MAY
HAVE TO SELL PERSONAL PROPERTY
TO COVER DEBTS, LIMITED
RESOURCES, LACK OF LONGEVITY
LAWN CARE, NAIL SALON,
HAIR SALON,
PARTNERSHIP
OWNED BY 2 OR
MORE PERSONS
DIVIDE RESPONSES/
PROFITS
GENERAL: MOST
COMMON, BOTH
PARTNERS SHARE
EQUAL
RESPONSIBILITY/LIA
BILITY
LIMITED: ONLY 1
PARTNER (GEN.)HAS
UNLIMITED
PERSONAL LIABILITY
BUT CONTROLS BUS,
OTHER PARTNERS
(LIMITED)ARE
INVESTORS BUT
DON’T ACTIVELY
MANAGE BUS.
LLP’S: ALL PARTNERS
HAVE LIMITED
PERSONAL LIABILITY
7%
EASY TO START, FEW GOV.
REGS., SHARED DECISION
MAKING, SPECIALIZATION,
MORE CAPITAL, PARTNERS
PAY INCOME TAX BUT BUS.
ITSELF IS NOT TAXED ON
INCOME
POTENTIAL FOR CONFLICT, UNLESS
LLP AT LEAST 1 PARTNER HAS
UNLIMITED LIABILITY,
DOCTORS, LAWYERS,
SMALL RETAIL STORES,
FARMS, CONSTRUCTION
CO’S, FAMILY BUSINESS
ATTORNEYS,
ACCOUNTANTS, DENTISTS,
PHYSICIANS CAN
REGISTER AS LLP’S
CORP
LEGAL ENTITY
(BEING) OWNED BY
INDIV.
STOCKHOLDERS
20%
STOCKHOLDERS HAVE
LIMITED LIABILITY DEBTS,
TRANSFERABLE OWNERSHIP,
EASY CAPITAL, LONGEVITY
DOUBLE TAXATION -TAXES ON
INCOME/DIVIDENDS/CAPITAL
GAINS),EXPENSIVE/DIFFICULT TO
START UP(CHARTER), MORE GOV.
REGULATIONS (REPORTS), OWNERS
MAY LOSE CONTROL TO MANAGERS,
MICROSOFT, IBM, COCA
COLA
FOUR TYPES OF MARKET STRUCTURES
MOST COMPETITIVE
LEAST
COMPETITIVE
PERFECT
COMPETITION
MONOPOLISTIC
COMPETITION
OLIGOPOLY
MONOPOLY
HOW EASY IS IT
FOR SELLERS TO
ENTER MARKET?
Sellers enter & exit
EASILY
lower start up costs
FEW BARRIERS TO ENTRY
DIFFICULT TO
ENTER, higher
start up costs
VERY DIFFICULT TO
ENTER MARKET, high
start up costs
WHAT TYPE OF
PRODUCTS ARE
SOLD?
IDENTICAL PRODUCTS
SIMILAR BUT NOT
IDENTICAL
MUST DIFFERENTIATE
BUILD BRAND LOYALTY
SIMILAR OR
IDENTICAL
ONE MAJOR
PRODUCT, NO
VARIETY or
SUBSTITUTES
HOW MUCH
CONTROL DO
SELLERS HAVE
OVER PRICES?
NONE results in LOWER
PRICES FOR BUYERS
who are WELL
INFORMED,
SUPPLY & DEMAND
DETERMINE PRICE
SOME/ SLIGHT CONTROL
BUT COMPETITION
DRIVES PRICES WHICH
VARY DUE TO
DIFFERENTIATION (STORE,
DESIGN, QUALITY)
MORE CONTROL
AS ONE LEADER
SETS PRICE,
INTERDEPENDENCE,
PRICE
LEADERSHIP
PRICE WARS,
COLLUSION
TOTAL CONTROL BY
SELLER
MEANS HIGHER
PRICES FOR BUYER
# HOW MANY
SELLERS ARE
COMPETING IN THE
MARKET?
LARGE # OF
SELLERS & BUYERS
MANY BUYERS AND
SELLERS
FEW LARGE
SELLERS
DOMINATE
MARKET
3-4 LGST
PRODUCE 7080%
ONE SINGLE
SELLER
GIVE EXAMPLES
agricultural (peaches,
apples)
JEANS (GAP VS
ABERCROMBIE), SOFT
DRINKS, COMPUTER
CELL PHONES,
AIRLINES,
AUTOS, CEREAL
PUBLIC UTILITIES
(WATER, SEWER)
Review terms
• Know these terms:
a) Equilibrium b) Horizontal/vertical merger
c) Resource allocation d) Price floor/ceiling
e) Price system f) Collusion
g) Cartel h) Differentiation
i) Trusts j) Sherman Anti-trust Act
k) Types of legal monopolies
l) Types of market structures
m) Types of business organizations
n) Taft/Roosevelt o) Rent Control
p) Black market q) Search costs