Chapter Eight
Business Organizations
Section One: Sole Proprietorships
Business organization: an establishment formed to carry on commercial enterprises
What are sole proprietorships? A business owned and operated by a single individual
Advantages of Sole Proprietorships:
Ease of start up[minimum requirements – business license needed, site permit if not
housed in home, name – registered if not using their own]
Relatively few regulations
Sole receiver of profit – and no special taxes paid to government
Full control & easy to discontinue
Disadvantages of sole proprietorships:
Unlimited personal liability – legally bound to pay all debts
Limited access to resources – limited money
Lack of permanence – too easy to end, hard to find good workers
Section Two: Partnerships
What are Partnerships? A business organization owned and operated by two or more
individuals who agree on a specific divisions of responsibilities and profits
General Partnerships: partnership in which partners share equally in both responsibility
and liability – many doctors’ offices, law offices, and construction companies
Limited Partnerships: partnership in which only one partner is required to be a general
partner – other partners only contribute money and do not actively run the business
Limited Liability Partnerships: partnership in which all partners are limited partners –
new form of partnership, protected from liability of another partners wrongdoing.
Advantages of Partnerships:
Ease of startup [article of partnership – a partnership agreement suggested by not
required]
Shared decision making and specialization – wider pool of knowledge
Larger pool of capital – more able to borrow money so more assets
No special taxes to government
Disadvantages of Partnerships:
Unlimited liability – you can loose everything
Potential for conflict – if you don’t agree with other partners
Section Three: Corporations, Mergers, and Multinationals
What are corporations? A legal entity owned by individual stock holders
What are the different types of corporations? Closely held corporations [privately held
corporations, publicly held corporation
Advantages of Incorporation:
Limited liability for owners – not personally liable for debts
Transferable ownership – can give or sell personal ownership easily
Ability to attract capital – by selling stocks & bonds – more $$ is available
Long life – can live longer than original ‘owners’
Disadvantages of Incorporation:
expense and difficulty of start-up – must complete a charter which includes : corporate
name, statement of purpose, length of time that the business will run, founders’ names
and addresses, headquarters’ business address, method of fundraising, rules for
corporation’s management
Double taxation – the corporation is a legal entity, it must pay taxes on its income, and
stockholders must also pay taxes on their dividends
Potential loss of control by the founders: managers and boards of directors operate the
business
More legal requirements and regulation must hold annual meetings for shareholders and
keep careful records of all business transactions
What are corporate combinations?
horizontal mergers – the combination of two or more firms competing in the same market
with the same good or service Chrysler Co. and Daimler - Benz
vertical mergers – the combination of two or more firms involved in different stages of
producing the same good or service – Steel industry – mines, steel mills, shipping, etc.
Conglomerates - business combination merging more than three business that make
unrelated products – toothpaste & brushes, cereal, house cleaners [SC Johnson]
Explain multinational corporations and give an example:
Multinational Corporation – large corporation that produces and sells its goods and
services throughout the world – Starbucks, Le Crueset, McDonalds
Advantages of Multinationals – providing jobs and products around the world, spread
new technologies, and production methods across the world
Disadvantages of Multinationals – multinationals may unduly influence the culture and
politics of other places
Section Four: Other Organizations
Name other types of businesses:
Franchises, Cooperatives, and Nonprofits
What is a franchise? Give advantages and disadvantages:
What are cooperatives? Name and describe the different types.
What are Non-Profits? Name and describe the different types.