Business Organizations

Chapter 3

4/19/2019 1
Sole Proprietorships
 Most common form of business
organization in the U.S.

 Owned & run by one individual

 Smallest form of business

 Smallest fraction of total sales

4/19/2019 2
Forming a proprietorship
 Easiest form of business to start

 Only requirements…business license & fees

 Advantages
 Own boss, keep profits, do not have to pay
separate taxes

 Disadvantages
 Unlimited liability, hard to raise money, size &
efficiency, limited managerial experience, hard
to find good employees, & limited life

4/19/2019 3
Partnerships
 Business that is jointly owned by two or more people. Least
common type of business organization

 Types of partnerships

 General partnership

 Most common form

 All partners are responsible for management & financial obligations of
business

 Limited partnership

 At least one partner is not active in the daily running of the business.
 The limited partner has limited responsibility for debts & obligations

4/19/2019 4
Forming a partnership
 Easy to start up

 Articles of partnership

 Specifies arrangements between partners

 I.e.
 How are profits divided up?
 How are tasks assigned?

 Advantages
 Ease of start-up, minimal costs, focus on strengths

 Disadvantages
 Conflict, limited life

4/19/2019 5
Corporations
 Form of business organization
recognized by law as a separate legal
entity

 Has all of the rights of an individual

 Corporation has the right to buy and

sell property, to enter into legal
contracts, and to sue and be sued
4/19/2019 6
Forming a corporation
 Must file for permission from national
government or state where business will
have its headquarters

 Charter

 Government document that gives permission to

create a corporation

 States company’s name, address, purpose, and

other features of the business

4/19/2019 7
Stock
 Certificate of ownership in a
corporation

 Shares of stock are sold to

stockholders or shareholders

 They become part-owners in company

 Dividends – portion of corporations

profits are paid to stockholders
4/19/2019 8
Corporate Structure
 Common stock

 Most frequently used form of corporate

ownership, with one vote per share for
stockholders

 Votes are used to elect a board of

directors, which in turn directs the
corporation’s business by setting policies
& goals
4/19/2019 9
Preferred stock
 Form of corporate ownership without vote

 Stockholders get their investments back

before common stockholders

 Corporation
 Adv – ease of raising money, limited liability,
unlimited life
 Disadv – double taxation, expensive to set up,
less control, more govt regs
4/19/2019 10
Business Growth &
Expansion

Section 2

4/19/2019 11
Merger
 Combination of two or more
businesses to form a single firm

 Can be risky

4/19/2019 12
Income statement
 Report showing a firm’s sales,
expenses, net income, and cash flows
for a certain period

 Shows how a business uses some of

its revenue to reinvest in the
company

4/19/2019 13
Net income
 Common measure of business profits
determined by subtracting all expenses,
including taxes, from revenues

 Depreciation- a noncash charge the firm

takes for general wear & tear on its
capital goods

 Cash flow- total amount of new funds a

business generates from operations
4/19/2019 14
Growth through mergers
 Types of mergers

 Horizontal – same product

 Vertical – different stages of production

 Conglomerates – unrelated products

 Reasons for merging

 Grow faster, efficiency, better product, eliminate
rival, change image

 Multi-nationals - A corporation that has

operations in a # of different countries
4/19/2019 15
Nonprofit Organizations

Section 3

4/19/2019 16
Nonprofit Organization
 Economic organization that operates
like a business but does not seek
financial gain

 I.E. American Red Cross

4/19/2019 17
Cooperatives
 Nonprofit association performing
some kind of economic activity for the
benefit of its members

 Types of cooperatives

 Consumer
 Service
 Producer
4/19/2019 18
Labor Unions
 An organization of workers formed to
represent its members’ interests
concerning pay, working conditions,
and benefits

 Collective Bargaining
 Negotiations with management over issues
such as pay, hours, insurance, and other
job related matters

 Unions also lobby for laws that will

benefit & protect their workers
4/19/2019 19
Professional Association
 Nonprofit organization of professional
or specialized workers seeking to
improve working conditions, skill
levels, & public perception of its
profession.

4/19/2019 20
Chamber of commerce
 Nonprofit organization of local
businesses formed to promote their
interests.

 Sponsors activities ranging from

educational programs to lobbying for
favorable business legislation

4/19/2019 21
Better Business Bureau
 Business-sponsored nonprofit
organization providing information on
local companies to consumers

 Also maintain records of consumer

inquiries & complaints

 Offer consumer education programs

4/19/2019 22
Government
 Direct Role

 Many government agencies produce & distribute

goods/services to consumers. I.E. USPS, FDIC

 Indirect Role

 Acts as an “umpire” to help the market economy

operate smoothly & efficiently.

 I.E. regulation of public utilities

4/19/2019 23