Business OrganizationsBusiness OrganizationsChapter Chapter

3http://www.youtube.com/watch?v=pPVkG9krOMI

Sole ProprietorshipSole Proprietorship

A business that is owned and managed by A business that is owned and managed by one individual who receives all the profits one individual who receives all the profits and bears all the losses.and bears all the losses.

Most common form of business Most common form of business organization BUT third in sales, & profits.organization BUT third in sales, & profits.

Sole ProprietorshipSole Proprietorship

BenefitsBenefits Easy to start and go out Easy to start and go out

of businessof business Control over profits and Control over profits and

business operationsbusiness operations Pride of ownershipPride of ownership Personal freedomPersonal freedom Lower taxes – no Lower taxes – no

corporate taxescorporate taxes Easy to manage/flexibleEasy to manage/flexible

CostsCosts Unlimited liability – owner Unlimited liability – owner

responsible for all losses responsible for all losses and debtsand debts

Difficulty in raising Difficulty in raising financial capital – banks financial capital – banks don’t like to lend to small don’t like to lend to small businessbusiness

Management knowledge Management knowledge may be limitedmay be limited

Size and efficiencySize and efficiency Difficult to attract qualified Difficult to attract qualified

employeesemployees Limited LifeLimited Life

PartnershipPartnership

A business that is owned and managed by A business that is owned and managed by two or more individuals who receive all the two or more individuals who receive all the profits and bear all the losses.profits and bear all the losses.

Least most common form of BO Third, 2Least most common form of BO Third, 2ndnd in in sales & profitsales & profit

2 types:2 types: General-General-

All partners are responsibleAll partners are responsible Limited ($ilent partner)- Limited ($ilent partner)-

One partner is NOT active in daily business but gave One partner is NOT active in daily business but gave money to start the businessmoney to start the business

PartnershipPartnership

BenefitsBenefits Easier to raise financial Easier to raise financial

capitalcapital Partners may combine Partners may combine

managerial skillsmanagerial skills Personal satisfactionPersonal satisfaction Lower taxes – no Lower taxes – no

corporate income taxcorporate income tax Ease of establishmentEase of establishment Ease of efficiency (more)Ease of efficiency (more) Easier to attract qualified Easier to attract qualified

workersworkers

CostsCosts Unlimited liabilityUnlimited liability Shared profitsShared profits Possible conflicts Possible conflicts

between partnersbetween partners Possible instability after Possible instability after

death of a partnerdeath of a partner Limited lifeLimited life

CorporationCorporation

A business that is owned and operated by A business that is owned and operated by stockholders and has rights and stockholders and has rights and responsibilities as if it were a person; responsibilities as if it were a person; Organized and recognized by lawOrganized and recognized by law

Second most common form of BO, first in Second most common form of BO, first in sales & profits!sales & profits!

CorporationCorporation

BenefitsBenefits Limited liability- corporation Limited liability- corporation

NOT owners is responsible NOT owners is responsible for debtfor debt

Greater financial capital – Greater financial capital – stocks, bondsstocks, bonds

Unlimited lifeUnlimited life Specialized managementSpecialized management Ease of transferring Ease of transferring

ownership – ownership – stockhttp://www.youtube.costockhttp://www.youtube.com/watch?m/watch?v=5BsOF1uJZnQ&feature=rv=5BsOF1uJZnQ&feature=relatedelated

CostsCosts Increased taxationIncreased taxation Difficulty in startingDifficulty in starting May be larger, more May be larger, more

bureaucratic than other bureaucratic than other forms of businessforms of business

Increased governmental Increased governmental controlcontrol

Expansion of businessExpansion of business

2 ways:2 ways: Reinvestment-Reinvestment- by putting some of its profits by putting some of its profits

back into acquiring more of the factors of back into acquiring more of the factors of production to produce more and therefore sell production to produce more and therefore sell more and even bigger profits!more and even bigger profits!

MergerMerger – a combination of two or more – a combination of two or more businesses to form a single firmbusinesses to form a single firm

http://www.youtube.com/watch?http://www.youtube.com/watch?v=21aLv9KluQsv=21aLv9KluQs

Reasons for mergingReasons for merging

EfficiencyEfficiency Standardize procedures; volume purchases; effective Standardize procedures; volume purchases; effective

use of advertisinguse of advertising Eliminate rivalsEliminate rivals

Royal Caribbean Cruises acquired Celebrity Cruise Royal Caribbean Cruises acquired Celebrity Cruise Lines in 1997 and doubled in sizeLines in 1997 and doubled in size

* may be blocked by FTC – Staples not allowed to * may be blocked by FTC – Staples not allowed to acquire Office Depotacquire Office Depot

Lose corporate identityLose corporate identity ValuJet merged with AirWays to form Airtran Holdings ValuJet merged with AirWays to form Airtran Holdings

Corp. after 1996 Everglades crash killing 110 Corp. after 1996 Everglades crash killing 110 peoplehttp://www.youtube.com/watch?peoplehttp://www.youtube.com/watch?v=hi76RCghZVM&feature=relatedv=hi76RCghZVM&feature=related

Types of MergersTypes of Mergers

HorizontalHorizontal 2 or more firms produce the same kind of product join 2 or more firms produce the same kind of product join

forcesforces Ex: merger of two banks (Wachovia and First Union)Ex: merger of two banks (Wachovia and First Union)

http://www.youtube.com/watch?NR=1&v=XmOFbk1aVbwhttp://www.youtube.com/watch?NR=1&v=XmOFbk1aVbw

VerticalVertical Firms involved in different steps of Firms involved in different steps of

manufacturing/marketing come togethermanufacturing/marketing come together Ex: merger of a steel company and a car manufacturerEx: merger of a steel company and a car manufacturer http://www.youtube.com/watch?http://www.youtube.com/watch?

v=KuRWcgwXcdA&feature=relatedv=KuRWcgwXcdA&feature=related

ConglomeratesConglomerates

Firm that has at least 4 businesses, each Firm that has at least 4 businesses, each making unrelated products, none of which is making unrelated products, none of which is responsible for a majority of salesresponsible for a majority of sales

Formed out of corporations that become so Formed out of corporations that become so large through mergers and acquisitionslarge through mergers and acquisitions

Main reason: Diversification – “don’t put all your Main reason: Diversification – “don’t put all your eggs in one basket” philosophyeggs in one basket” philosophy

Ex: KFC fast-food restaurant; fruit and vege. Ex: KFC fast-food restaurant; fruit and vege. processor Del Monte and Heublin – wine processor Del Monte and Heublin – wine producer and distributorproducer and distributor

http://www.youtube.com/watch?v=6DslMsrbAAAhttp://www.youtube.com/watch?v=6DslMsrbAAA

MultinationalsMultinationals

Corporation that has manufacturing or Corporation that has manufacturing or service operations in a number of different service operations in a number of different countriescountries

Tax Status: Likely to pay taxes in each Tax Status: Likely to pay taxes in each country it has operations incountry it has operations in

Multinationals Cont.Multinationals Cont.

StrengthsStrengths Help spread new technology worldwideHelp spread new technology worldwide Generate new jobs in areas where jobs are neededGenerate new jobs in areas where jobs are needed Produce tax revenues for host countryProduce tax revenues for host country

WeaknessesWeaknesses b/c large and powerful, influence political life in host b/c large and powerful, influence political life in host

nationnation May exploit the economy of host nation by paying May exploit the economy of host nation by paying

workers low wages, by exporting scarce natural workers low wages, by exporting scarce natural resources, or by adversely interfering with the resources, or by adversely interfering with the development of local businessdevelopment of local business

Takes away jobs at homeTakes away jobs at home

GovernmentGovernment

Direct Role – produces and distributes goods Direct Role – produces and distributes goods and services to peopleand services to people National defenseNational defense Police, fire, schools, courts, etc.Police, fire, schools, courts, etc.

Indirect Role – acts as an umpire to make sure Indirect Role – acts as an umpire to make sure the market economy operates by the rulesthe market economy operates by the rules Public utilities – no competition = gov. regulationPublic utilities – no competition = gov. regulation Financial aidFinancial aid Social SecuritySocial Security

CooperativesCooperatives

Voluntary association of people formed to Voluntary association of people formed to carry on some kind of economic activity carry on some kind of economic activity that will benefit its members due to lack of that will benefit its members due to lack of it in their particular area:it in their particular area: ConsumerConsumer ServiceService ProducerProducer

Non-Profit OrganizationNon-Profit Organization

Work to make the best use of scarce Work to make the best use of scarce resources. resources.

Non profit organizations do not seek Non profit organizations do not seek financial gain for their membersfinancial gain for their members

Consumer CooperativeConsumer Cooperative

Voluntary association that buys bulk Voluntary association that buys bulk amounts of goods on behalf of its amounts of goods on behalf of its membersmembers

Wants to provide members lower pricesWants to provide members lower prices

Service CooperativeService Cooperative

Deals with services rather than goodsDeals with services rather than goods Offer members insurance, credit, and Offer members insurance, credit, and

other servicesother services

Producer CooperativeProducer Cooperative

Helps members sell their productsHelps members sell their products FarmersFarmers

Labor UnionsLabor Unions

Organization formed to work for its Organization formed to work for its members’ interests in various employment members’ interests in various employment mattersmatters

Negotiate with management for better pay, Negotiate with management for better pay, working conditions, vacation, etc.working conditions, vacation, etc.

Professional AssociationsProfessional Associations

Group of people in a specialized Group of people in a specialized occupation that works to improve the occupation that works to improve the working conditions, skill levels, and public working conditions, skill levels, and public perceptions of the professionperceptions of the profession

Teachers/ProfessorsTeachers/Professors LawyersLawyers

Business AssociationsBusiness Associations

Organize to promote their collective Organize to promote their collective interestinterest

Chamber of Commerce – (most cities and Chamber of Commerce – (most cities and towns have) promotes the welfare of its towns have) promotes the welfare of its members and the communitymembers and the community

Better Business Bureau – help to protect Better Business Bureau – help to protect the consumer, provides information on the consumer, provides information on companiescompanies