Business Organizations

1
Chapter 3

• Business Organizations

2
Forms of Business Organization

• There are three main types
• Sole Proprietorship
• Partnerships
• Corporations

3
Sole Proprietorship

• This is business owned and run by one person.
  Proprietorships are the most numerous, but are
  the smallest in size.
• It is the easiest to start because it has almost
  no requirements except for an occasional business
  license and fees.
• Lemonade stand
• Lawn mowing service
• Internet business

4
Sole Proprietorship

• Advantages

• Disadvantages

• Ease of start-up
• Ease of management
• Owner gets the profits
• Avoids separate business taxes
• Be your own boss
• Ease of getting out of business

• Unlimited liability
• Difficult to raise financial capital
• Problems with size and efficiency
• Limited managerial experience
• Hard to find qualified employees
• Limited life

5
Partnerships

• This is a business jointly owned by two or more
  persons. There are two types general partnership
  and limited partnership. They are fairly easy to
  start, but they need legal documentation to
  outline the roles and responsibilities of each
  member in the partnership.

6
Partnerships

• Advantages

• Disadvantages

• Ease of start-up
• Ease of management
• Lack of special taxes
• Easier to attract financial capital
• Larger sizeefficient operation
• Easier to attract talented workers

• Responsibility (Limited vs. general)
• Limited life
• Potential for conflict between partners
• Can result in personal bankruptcy

7
Corporations

• This is a form of business organization
  recognized by law as a separate legal entity
  having all the rights of an individual. The
  company can buy and sell property, enter into
  legal contracts, and sue and be sued.
• It takes a very formal legal process to start a
  corporation it requires a charter, needs stock,
  stockholders, and may pay dividends.

8
Corporations

• Advantages

• Disadvantages

• Ease of raising financial capital
• Good management
• Limited liability to its owners
• Unlimited life

• Difficult and expensive to get a charter
• Shareholders have little say in operations
• Double taxation of corporate profits
• Subject to large amounts of government regulation

9
Section 3.2

• Business Growth And Expansion

10
Business Growth and Expansion

• Growth for businesses can happen in one of two
  ways
• Growth through reinvestment
• Growth through mergers

11
Growth Through Reinvestment

• Most companies reinvest in new factories, new
  machinery, new technologies, etc. with the money
  they have made.
• By looking at a companys income statement, you
  can derive their net income by subtracting its
  expenses from its revenues.
• Revenue - Expenses Net Income

12
Growth Through Mergers

• A merger is a combination of two or more
  businesses to form a single firm.
• When this happens, one gives up its separate
  legal identity. This can happen for several
  reasons.

13
Reasons for Mergers

• One firm may benefit from extra funds received
  from another firm.
• They become more financially efficient.
• Some firms merge in order to acquire new product
  lines.
• Some firms merge to catch up with or eliminate
  competition.
• A firm may actually merge to lose its identity.

14
Types of Mergers

• Horizontal Mergers

• Vertical Mergers

• Two or more firms that produce the same product
  join forces.
• Ex Banks, phone companies, auto manufacturers

• Two or more firms involved with different steps
  of manufacturing or marketing.
• Ex Auto company merging with tire company

15
Conglomerates

• This is a firm that has at least four businesses,
  each making unrelated products, none of which is
  responsible for the majority of sales.
• This happens, usually, after merging and
  acquiring several different companies.
• Diversification is a main reason for this taking
  place.

16
Multinationals

• This is a corporation that has manufacturing or
  service operations in a number of different
  countries.
• They have the ability to move resources across
  international borders.
• They are usually very welcome where they are set
  up, as they bring jobs and economic growth to the
  area.

17
Section 3.3

• Other Organizations

18
Other Organizations

• Nonprofit Organizations operate in a businesslike
  way to promote the collective interests of its
  members rather than to seek financial gain for
  its owners. Some types are
• Community and Civic Organizations
• Cooperatives
• Labor, Professional, and Business Organizations
• Government

19
Community and Civic Organizations

• These include churches, schools, hospitals,
  welfare groups, and adoption agencies.
• They provide goods and services to their members
  while they seek to improve things like
  educational standards, health care, and the less
  fortunate.

20
Cooperatives

• Also known as co-op, this is a voluntary
  association of people formed to carry on an
  economic activity that will benefit its members.
  There are three kinds of cooperatives
• Consumer cooperative
• Service cooperative
• Producer cooperative

21
Labor, Professional, and Business Organizations

• Labor unions are organizations of workers formed
  to represent its members interests in various
  employment matters through collective bargaining.
  
• Professional associations are a group of people
  in a specialized occupation that works to improve
  the working conditions, skill levels, and public
  perception. Ex AMA, ABA

22
Labor, Professional, and Business Organizations

• Business Associations, such as the chamber of
  commerce and Better Business Bureau, are
  organizations dealing with businesses as a means
  of promotion.

23
Government

• Direct Role

• Indirect Role

• This is evident when government agencies produce
  goods and/or services
• Ex USPS, TVA, FDIC, Fire/Police Department,
  TxDOT

• In this case, the government acts like an umpire
  to make sure the economy is running smoothly.
• A major example is that of the public utility
  system.