Business and Labor
Chapter 22
Types of Businesses
1. Sole proprietorship
 Most common form of business organization
 Business owned and operated by a single person
 Easiest form of business to set up
 Advantages
 Owner receives all profits
 Decisions on how to run the business can be
made quickly
 Disadvantages
 Owner responsible for all problems related to
business
 Owner has unlimited liability, all personal
assets of owner may be seized to pay debts
 Hard to raise financial capital
 Difficult to attract qualified employees, can’t
offer fringe benefits (insurance, sick leave, etc.)
Types of Businesses
 Partnerships
 Owned by two or more people
 Business partners bound by articles of
partnership
 Determine how much each member will contribute,
what role each person has
 How profits will be shared
 How partners will be added or removed
 Advantages
 Multiple owners can raise more money
 Owners do not pay corporate income tax
 Each owner brings certain skills to help the business
 Disadvantages
 Legal structure is complex
 Owners have unlimited liability
Types of Businesses
3. Corporations
 Has many of the rights and
responsibilities of an individual
 Can do anything a person can do (own
property, pay taxes, get sued) except
vote
 20% of all businesses are corporations
 Charter is a government document that
grants them permission to organize
 Specifies amount of stock that will be
issued
 Stockholders become owners of the
corporation
 Money received from selling stock is used
to set up and run company
 Stockholders elect a board of directors to
act on their behalf
 Board hires managers to run the company
on a daily basis
Types of Businesses

Advantages
 Easy to raise financial capital (sell shares of stock)
 Ability to raise capital allows corporations to grow huge
 Many have economies larger than some countries
 Board of directors can hire managers to run company and replace them if they fail
 Ownership can be easily transferred by selling stock
 Corporations have limited liability, if company fails individuals not liable for
companies debts

Disadvantages
 Expensive and complex to set up
 Owners have little say in business because of stockholders
 Subject to more regulation by government
 Have to release financial reports to keep shareholders informed of business
 Stockholders subject to double taxation (taxes on corporation and on shareholder
earnings
Types of Businesses
 Other types of business
organizations
 Non-profits
 Uses surplus funds to promote interests
of members (hospitals, churches and
social service agencies)
 Earnings not distributed to owners
 Exempt from income and property
taxation
 Cooperatives
 Voluntary organization that is formed
for economic activity
 Buy bulk goods on behalf of members
 Farmers Cooperatives members sell
crops directly to central markets
Corporations, Mergers and Multinationals
Corporate Combinations

Companies combine with other companies to create larger
more efficient firms

Can sell goods at a lower price
Three types of mergers

Horizontal Merger
 Two or more companies that compete in the same market and
provide the same good or service
 Try to improve efficiency, reduce costs and boost revenue
 Monitored closely by the federal government so they do not create
a monopoly

Vertical Merger
 Companies involved in different stages of producing good or service
 New firm can control all phases of production
 Typically do not lessen competition

Conglomerate
 Buy companies that produce unrelated goods
 Have more that three businesses that produce unrelated products
 One business earns a majority of the firms profits
Corporations, Mergers and Multinationals
Multinational Corporations
 Produce goods throughout the world
 Operate in more than one country at a time
 Must obey laws and pay taxes in all countries
where they operate
 Many have operating budgets bigger than most
governments
 Advantages
 Provide jobs
 Spread technology
 Help poorer nations improve their standard of living
 Disadvantages
 Have too much influence over culture and politics in
countries where they operate
 Working conditions are poor
Other Organizations
Business franchise
 Semi independent business that
pays fees to parent company
 In return it has the exclusive
right to sell a certain product in
a given area
 Franchiser (parent company)
develops products and works
with local franchise to produce
and sell product
 Allows owners a degree of
control and owners benefit from
support of parent company
Other Organizations
Advantages
A.
Come with a built in reputation
B.
Management and training support
C.
Standardized quality

owners follow certain rules and processes to guarantee product quality
D.
National advertising
E.
Financial assistance
F.
Centralized buying power

buy materials in bulk to keep costs down
Disadvantages
A.
High franchising fees and royalties

B.
Royalties are a share of earnings
Strict operating standards

Must follow all rules in the franchise agreement
C.
Purchasing restrictions
D.
Limited product line

can only sell approved products
Labor Unions
 Labor unions are groups of workers who band together to gain
better pay and working conditions
 14% of American workers belong to a union
 Two types of unions
 Trade unions- all workers perform the same skill (craft union)
 Industrial unions- all workers in the same industry
Labor Unions
 Organized labor operates at three levelslocal, national and the federation
 Local- members of a factory, company
or geographic area
 Deals with a company negotiating a
contract and monitors the terms of a
contract
 National unions help set up local
unions and to negotiate contracts
between local unions and companies
 Provides lawyers and staff to negotiate
contracts for the entire industry
 Federation level- AFL-CIO is a union
that represents 13 million workers
worldwide
Labor Unions
 Some criticize unions for trying to control the labor supply
 Some unions support the closed shop where a worker had
to be a union member to be hired
 1947 Taft-Hartley Act closed shops became illegal in any
company that participated in interstate commerce
 More common now is the union shop
 Companies hire nonunion workers but they must join the union
to begin working
 Taft Hartley allows states to ban this activity
 These states are called right to work states that prevent unions
from forcing workers to join unions
 Modified union shops workers can join union if they want
to, but are not required to join
 Union can’t be brought into a workplace unless a majority of
workers vote for it
 National Labor Relations Board oversees union activity
Labor Unions
 Union carries out collective bargaining
 Officials from union and company meet to discuss
terms of worker contacts (hours worked, wages,
benefits)
 When two parties can’t agree they try mediation
 Third party comes in to help both sides reach an
agreement
 Some cases workers choose arbitration
 Where third party decides how to settle the
disagreement
 Both parties agree in advance to accept what
arbitrator decides
 Unions and management use different tools to try
to get other side to accept agreement
 Workers can strike where all union workers refuse
to work
 Unions can encourage the public to boycott the
business’ products
 Companies can lockout workers until they meet
their terms
Business in Our Economy
Section 3
Business in Our Economy
 Businesses play many different
roles in our economy
 Consumers- purchase goods and
services from other businesses (raw
materials, office supplies, etc.)
 Employers- provide jobs and pay
workers
 Producers- produce a wide variety of
goods and services for consumption
Business in Our Economy
Responsibilities of Businesses
1. Responsibility to consumers
 to make sure products are safe
 To advertise truthfully
 If they do not follow these rules government can step in
and regulate the industry or pull the products from the
market
2. Responsibilities to owners (and stockholders)
 Especially important for corporations
 To protect shareholders corporations release financial
information regularly
 One purpose of transparency is to provide investors with
information to see if investment is worth the risk
 Government can step in if companies are not honest
Business in Our Economy
3. Responsibility to employees
 Give workers a safe workplace
 Treat workers fairly without discrimination
 1990 Americans with Disabilities Act
keeps employees from discriminating on the
basis of mental or physical disabilities
4. Responsibilities to the Community
 Many businesses feel they have a social
responsibility to pursue goals that benefit
society as well as themselves
 Many companies give money to charities or
take an active role in their community