Forms of Business Organization

Targets Compare and contrast the following forms of business organization: sole proprietorship, partnership, and corporation. Explain the function of profit in a market economy as an incentive for entrepreneurs to accept the risks of business failure.

3 Main forms of Business Organizations 1. Sole Proprietorship form of business in which there is one owner 2. Partnership type of business organization in which there are two or more owners 3. Corporation organization of people legally bound together by a charter to conduct some type of business

Sole Proprietorship ADVANTAGES Easy to start up Complete Control Profits stay with the owner Less taxes Pride of ownership Easy to get out DISADVANTAGES Unlimited liability owner is personally and fully responsible for all losses and debts of the business Difficult to raise money Limited life of the business firm legally ceases to exist when the owner dies, quits, or sells the business

Partnership ADVANTAGES Easy to start up Combination of skills Not difficult to raise money Little governmental regulation DISADVANTAGES Each partner is fully responsible for the acts of all other partners Unlimited liability Profits are shared Limited life of business Disagreements

Corporation ADVANTAGES Easy to raise funds Limited liability risks are shared Unlimited life Easy to transfer ownership DISADVANTAGES Difficult and expensive to start Less direct control shareholders have little voice in how the business is ran Double taxation More government regulation

What type of Business Organization is it? J. Jordan Bobo, White, & Hunt Law Office McDonald s The Pomegranate Buckle Craig and Wheeler Reality Sole Proprietorship? Partnership? Corporate?

Stocks, Shareholders, Dividends Oh My! Stock ownership certificates in the firm sold to investors called stockholders or shareholders Stockholders own a portion of the corporation Money gained from the sale of the stock helps launch the corporation Once the corporation becomes profitable, it may issue dividends portion of the corporation s earnings to each stockholder

Shareholders elect the Board of Directors select the President hires the VP - Sales VP - Production VP - Finance Domestic International Quality Control Research and Development Payroll

Common Stock vs. Preferred Stock Common Stock represents basic ownership of a corporation 1 vote for each share of stock Vote is used to elect the board of directors Preferred Stock represents nonvoting ownership shares of the corporation No voting rights

Double Taxation Double Whammy! Stockholder dividends are taxed twice 1. When the corporation pays taxes on its profits 2. When investors report their dividends as personal income

Business Growth and expansion

Targets Analyze the various ways and reasons that firms grow either through reinvestment of financial capital obtained through retained earnings, stock issues and borrowing, or through horizontal, vertical, and conglomerate mergers.

How Can Businesses Grow? Reinvestment Putting profits back into the business Mergers Combining two or more businesses to form one business Two Types of Mergers Horizontal Vertical

Horizontal Merger Combination of two or more firms producing the same kind of product

United Name Continental Logo

Vertical Merger Combination of firms involved in different stages of manufacturing or market (different types of businesses) Dairy Farm + Milk Delivery Service + Ice Cream Parlor Shoppe

Why do businesses merge? Grow faster Become more efficient Deliver a better product Eliminate a rival Change its image

What Do you Think, When You See? ABC Family, ESPN, Marvel Entertainment, themeparks, cruiselines Instruments, Electronics, archery, electronics, appliances, Watercrafts, household ATVs products

Conglomerates A firm with four or more businesses making unrelated products with no single business responsible for a majority of its sales Some firms hope to protect their overall sales and profits by not putting all their eggs in one basket. Not many in the U.S. List of conglomerates

Multinationals Corporation producing and selling with no national boundaries and whose business is located in several countries General Motors, Sony, Mitsubishi, Nissan Advantages Ability to move resources, goods, services and financial capital across national borders Generates technology and new jobs in areas that may need it Lower cost production and higher quality output Disadvantages Abuse power by paying low wages to workers Exporting scarce natural resources Interference with development of local businesses

What businesses would you like to see merge? Explain the benefits of the merger. What kind of merger would it be?

Nonprofit Organizations

Targets Summarize the role and historical impact of economic institutions, such as labor unions, multinationals, and nonprofit organizations, in market economies.

What is a Nonprofit Organization? Economic organization that operates like a business but does NOT seek financial gain http://www.forbes.com/topcharities/list/#tab:rank Q: Are you involved in any nonprofit organizations?

Varieties of Nonprofit Organizations 1. Community Organizations Churches, schools, hospitals, welfare groups, etc. 2. Cooperatives/CO-OP A voluntary association formed to carry on some kind of economic activity that will benefit its members

Cooperatives/Co-op 1. Consumer Cooperatives voluntary association that buys bulk amounts of goods such as food or clothing on behalf of its members Goodwill, Bulk Food Stores, Housing 2. Service Cooperatives provides services such as insurance, credit, or child care to its members, rather than goods. Ascend Federal Credit Union, Farm Bureau 3. Producer Cooperatives helps members promote or sell their products Co-op

Labor, Professional, and Business Organizations Labor Unions - organization of workers formed to represent its members interests in various employment matters National Education Association Professional Associations consists of people in a specialized occupation interested in improving the working conditions, skill levels, and public perception of the profession American Medical Association (AMA) Business Associations Chamber of Commerce, Better Business Bureau

Government Involvement Direct Involvement U.S. Postal Service (USPS) Tennessee Valley Authority (TVA) Federal Deposit Insurance Corporation (FDIC) Public Colleges and Universities Police and Fire Protection Public roads, libraries, parks Indirect Involvement Monitoring and regulating public utilities Social Security, Medicare, WIC Financial aid to college students Unemployment compensation Role is direct, because the government supplies a good or service that competes with private businesses. Gov t plays an indirect role when it acts as an umpire to help the economy operate smoothly and efficiently.