Forms of Business Organization - PC\|MACimages.pcmac.org/.../Unit_1_-_Business_Organizations_(lecture)_1.pdf · Compare and contrast the following forms of business organization:

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

Sole

Proprietorship?Partnership? Corporate?

J. Jordan

Bobo, White, &

Hunt Law Office

McDonald’s

The

Pomegranate

Buckle

Craig and

Wheeler Reality

What type of

Business Organization is it?

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√

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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

DevelopmentPayroll

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, archery,

electronics, Watercrafts,

ATVs

Electronics,

appliances,

household 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

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

Corporation producing and selling with no national

boundaries and whose business is located in several

countries

General Motors, Sony, Mitsubishi, Nissan

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/top-

charities/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.

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