Business and LaborChapter 22

1st Type of Business: Proprietorships• -The most common form of business organization in

the US is the *sole proprietorship, or proprietorship- a business owed and operated by a single person.

• -Structure- a proprietorship is the easiest form of business to set up.

• -Advantages- the proprietor has full pride in owning the business, receives all the profits, and has no “higher-up” person to answer to.

• -Disadvantages- the owner is financially responsible for all and any problems related to the business, known as *unlimited liability.

• -Sole proprietors find it difficult to raise *financial capital- the money needed to run a business or enable it to grow larger.

• 2nd Type of Business: *Partnership- is a business owned by two or more people. There are fewer partnerships than any other form of business.

• -Structure- when they start a business, partners draw up a legal agreement called *articles of partnership. This identifies how much money each will contribute and what role each will play in the business.

• -It also clarifies how they will share profits or losses, and how to break up the business if they want to close it down.

• -Advantages- b/c there are multiple owners, partnerships can usually raise more money.

• -Disadvantages- are that the legal structure is complex, when a partner is added or removed, a new agreement has to be made.

• -Owners have *unlimited liability, meaning that each owner is fully responsible for all the debts of the partnership.

3rd Type of Business: *Corporation- is a business recognized by

the law that has many of the rights and responsibilities of an individual.

• -A corporation can do anything a person can do- own property, pay taxes, sue or be sued, but it can not vote.

• -One-fifth of all businesses are corporations.• -Structure- someone who wants to start a corporation must

get a *charter- a govt document granting permission to organize. (It has the name, address, and other features of the business on it.)

• -A charter also specifies the amount of *stock, or ownership shares of the corporation, that will be issued.

• -The people who buy the stock are known as *stockholders- who become owners of the corporation. Corporations use money from selling stock to run the business.

• -The shareholders elect a *board of directors to act on their behalf. The board hires managers to run the corporation on a daily basis.

• -Advantages- the ease of reusing financial capital.• -If it wants to expand, it can sell new shares of stock to get the money.• -Also find it easier than other types of businesses to borrow large sums of

money.• -Corporations can grow to be huge, employing thousands and carry out

business worldwide.• -Another advantage is that the board of directors can hire/fire

professional managers to run the business.• -Ownership of a corporation can be easily transferred by selling stock.• -A final advantage of the corporation is the *limited liability- where only

the corporation, not the owners, are responsible for the debts of the corporation.

• -Unlike the proprietorship or the patnership, you would be liable for the company’s debts.

• -Disadvantages- often expensive and complex to set up, business owners have very little say in the management of the business.

• -Corporations are also subject to more regulation by govt than other forms. They must release certain reports on a regular basis, giving detailed information about the company.

• -Finally, stockholders are subject to *double taxation, or paying taxes twice on corporate profits.

• -First the corporation pays taxes on its profit, then when the profits are distributed to the shareholders; they have to pay income tax on those earning.

• Other Business Organizations• -Other organizations operate on a * “not-for-profit”

basis.• -A nonprofit organization operates in a business like

way to promote the interests of its members. (Churches, hospitals, and social service agencies)

• -Another example of a nonprofit organization is the *cooperative- a voluntary association of people formed to carry on some kind of economic activity that serves to benefit its members.

• -Producers, like consumers, can also have cooperatives, where it helps members promote or sell their products.

• *Labor Unions- are groups of workers who band together to have a better chance to obtain higher pay and better working conditions. (14% of Americans belong to labor unions.)

• Types of Unions• There are 2 types of labor unions- craft/trade

unions and industrial unions.

• How are Unions Organized • -Operate on three levels: the local union, the national or

international union, and the federation.• Local Union- is comprised of the members of a union in a

factory, company, or geographic area.• National Unions- are individual craft or industrial unions

that represent local unions nationwide.• -National unions send organizers to help employee’s

campaign to set up local unions. They provide lawyers and other staff members to help negotiate contract b/t a local union and a particular company.

• -Some of the largest unions are the United Automobile Workers (UAW) and United Steelworkers of America (USWA).

• At the federation level is the *AFL-CIO, formed in 1955 by the merger of the American Federation of Labor and the Congress of Industrial Organizations.

• -It represents more than 13 million working men and women nationwide.

• Union Arrangements• *Closed Shop- means that a worker had to belong to the union in

order to be hired by a company. (More common in the past)• *1947 Taft-Hartley Act- made this illegal for any company that

makes goods that are sold in the states other than the state in which the company is located.

• *Union shop- more common today- companies can hire nonunion people, but those workers must join the union once they begin working.

• -22 states have passed the *right to work laws, which prevent unions from forcing workers to join.

• *Modified union shop- workers do not have to join a union after they are hired but can if they want to.

• -A union can not be brought into any workplace unless a majority of the workers are in favor of it.

• *The National Labor Board (NLRB)- is the govt agency that makes sure union elections are carried out fairly and honestly.

• Negotiations• -Once workers choose to be represented, the

union carries out *collective bargaining- where officials from both sides meet to discuss the terms of the workers new contract.

• -Each contract covers a few years.• -Negotiations focus on wages, benefits, hours of

the workday, and holidays.• -At times they might have to call for outside help

during negotiations.• *Mediation- where they bring in a third party

who tries to help them reach an agreement.• *Arbitration- where a third party listens to both

sides and then decides how to settle the disagreement.

• Labor-Management Conflict- unions and management can use different measures to try to pressure the other side to accept their position.

• *Strike- where all workers in the union refuse to go to work. They often picket outside the business with signs explaining what the strike is about.

• *Lockout- the strongest tool used, where the company blocks workers from entering its building until they agree to accept its contract terms.

• Section 3: Businesses in our Economy• -Most are consumers, employers and producers • The Responsibilities of Business• -To the consumers- to sell a good product.• -To the owners- the business must reveal its

information to provide investors with full disclosure before they choose to invest, or continue to invest, in the company. This is called *transparency.

• -To the employees- business must give their employees a safe workplace and treat all workers fairly and without *discrimination.

• -To the community- more businesses are emphasizing their *social responsibility- the obligation they have to pursue goals that benefit society as well as themselves.