business organizations ch 8.1 sole proprietorships role of sole proprietorships...

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Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

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Page 1: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Business Organizations

CH 8.1 Sole Proprietorships

Role of sole proprietorships

Advantages/Disadvantages

Page 2: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Sole Proprietorships

Most common form of business organizations in the US - about 75%

Business owned and managed by a single person All the profits and debts 75% of businesses, but only about 6% of total

sales

Page 3: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Under 25K25K-49,99950K - 99,999100K - 499,999500K - 999,9991,000,000+

Size by $$

69%

12%

8%

9%

0.9% 0.4%

Services

Finance, Insurance,Real Estate

Retail

Construction

Agriculture

Mining

Transportation

Manufacturing

Wholesale

48%13%

16%

Size by type

Page 4: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Relatively easy to start up A little paperwork and some legal expenses

Some minimum requirements1. Authorization - business license

2. Site permit

3. Register the name

Page 5: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Few regulations Least regulated form of business Zoning Laws

Separate areas are designated for commercial and residential uses

Owner gets all the profit Full Control Easy to get out of business

Cover debts and taxes

Page 6: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Disadvantages

Unlimited Personal Liability Legal obligation to pay debts

Limited access to resources Barriers to entry? Physical/ Human Capital?

Lack of Permanence Limited life expectancy? Benefits to employees Lack of experienced employees Responsibility

Page 7: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Partnerships CH 8.2

Business owned by two or more people

Specify division of profits and responsibilities

About 7% of all businesses in the US

5% of all sales in the US

Page 8: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

-25K25 - 49,99950K - 99,999100K - 499,999500K - 999,9991,000,000+

59%

15%

9%

8%4%

4%

AgricultureMiningConstructionManufacturingTranspotationWholesaleRetailI, RE, Fin.Service

54%

18%

8%

9%

Page 9: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Types of Partnerships

General Partnership Responsibilities and liability shared equally Doctors, lawyers, construction companies

Limited Partnership Liability falls on one person

More control to the general partner Other partners only contribute $

Lose only investments

Page 10: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Types of Partnerships

Limited Liability Partnership (LLP)

Every partner is a limited partner

Exempts each of them from each other’s mistakes

Lawyers, Physicians, dentists, accountants

Page 11: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Easy to start No written agreement necessary

Articles of partnership Spells out rights and responsibilities Sharing of profits and losses How new partners can join

Uniform Partnership Act State law to establish rules for partnerships Common ownership interests Shared management responsibilities

Page 12: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Profits are shared however the partnership decides No regulations

Specialization Skills brought to business

Larger pool of capital More people means more assets Prestigious

Taxes No taxes on business, just income generated

Page 13: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Disadvantages

Unlimited liability Actions of one partner can jeopardize everyone

else Pick partners carefully LLP

Conflict Goals, work habits, ethics, etc. Communication

Page 14: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

CH 8.3 Corporations, Mergers, and Multinationals

Getting people to invest in your company is another way to allow your company to grow

Corporations - the most complex of the business orgs. Legal entity owned by individual stock holders,

each of which has limited liability of debts Stock (shares) represent the portion of ownership

Page 15: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Corporations

Different than SP’s Defined as a separate entity

Must pay taxes Makes contracts Sues/ gets sued

20% of businesses in US 90% of all the products sold

Page 16: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

-25K25 - 49,99950 - 99,999100 - 499,999500 - 999,9991,000,000+

AgrMiningConstrManufTranspWholesaleRetail Fin. I, REServices

$

23%

31%

19%

10%

11%

34%

17%15%

6%

p.196

Type

Page 17: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

2 Types of Corporations

Closely Held Corporations Stock issued to only a few people Usually family members, passed down AKA - privately held corporations

Publicly Held Corporations Many shareholders who buy and sell stock

Page 18: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Structure

Owners elect a board of directors Directors make all the decision making Appoints corporate officers that oversee

production Officers hire managers, who hire employees

Page 19: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Incorporation - forming of Corp. serves interests of both individuals and the Company Limited liability Transferable ownership Ability to attract capital Longer life

Page 20: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Individual advantages

Limited Liability No real responsibility

Invest your $ for a ROI, can’t lose more

Flexibility - Ability to sell your stocks and move on

Start losing money, not responsible for company debts

Page 21: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages for Corporations

More potential for growth Easier to raise $

Sell as much stock as charter will allow Bonds - certificates sold that guarantee interest

Experts run business Long Life

Stock is transferable Can continue indefinitely

Page 22: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Disadvantages

Much harder to start up More expensive License - Certificate of Incorporation

(Corporate Charter) Name Statement of purpose Length of time it will run Founders’ names HQ address Method for fund raising Rules for management

Page 23: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Disadvantages

Double Taxation Seen as its own entity, taxed in addition to income

of individuals Tax when shares are sold too

Loss of Control More Regulation

Meetings for shareholders File quarterly reports to Security Exchange

Commission (SEC) Fed agency that regulates the stock market

Page 24: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Corporate Combinations

Three major types Horizontal Merger - two or more in the same

market

Page 25: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Combinations

Vertical Mergers - joining of different stages of production

Carnegie Steel

Page 26: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Combinations

Conglomerate - combination of companies that have nothing to do with each other

No one part of the business earns substantially more than the others

Page 27: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Multinationals (MNC’s)

HQ in one country with branches in others Must follow laws of country they are operating in

as well as pay taxes

Some of the biggest have budgets larger than Govt budgets

Page 28: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Provide jobs worldwide Spread technology Improve standard of living

Influence politics, culture Low wages offered

Disadvantages

Page 29: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Other Organizations CH 8.4

Business franchises Semi independent Pays fees to franchisers Exclusive rights to sell products Fast food, hotels,

Page 30: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Advantages

Reputation Training and support Standardized quality Nationalized advertising Financial assistance Centralized buying power

Bulk saving passed on

Page 31: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Disadvantages

High fees/ royalties Strict standards

Hours, dress codes, procedures Purchasing restrictions

Must buy from certain approved suppliers Limited product line

Page 32: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Cooperatives

Owned and operated by a group of individuals for their shared benefit Three categories Consumer Co-ops

Housing, Colombia House Service Co-ops

Credit unions Producer Co-ops

Agriculture/ sell crops for you

Page 33: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Nonprofit Orgs.

Usually work to benefit society some how Museums, Public Schools, Red Cross,

Salvation Army, hospitals, churches

No income tax

Almost all provide a service rather than a good

Page 34: Business Organizations CH 8.1 Sole Proprietorships Role of sole proprietorships Advantages/Disadvantages

Nonprofit Orgs. Some provide services to specific groups

Professional orgs - improve work conditions, image, skills American Bar Association - lawyers American Medical Association - doctors

Business Associations - promotes business interests in a particular area

Chamber of Commerce, Better Business Bureau

Trade Associations Promote interests of particular industries

Labor Unions