S

Types of Businesses Organizations

Unit 7Decision, Decisions

A business organization is an establishment formed to carry on a commercial enterprise

Also called a company or a firm

Single or SoleProprietorship

Business owned and managed by one person

Over 11 million in the U.S.

Most common type of organization

Examples:

Restaurants, gas stations, lawn care

Sole Proprietorship

Advantages

- Easy start-up (business licenses, site permit, name of business)- Sole receiver of

profit- Full control of

business- Easy to discontinue- Not subject to

special business taxes

Disadvantages

- Unlimited personal liabilityo Liability is a legally

bound obligation to pay debts. Sole proprietors are bound to all of their business debts

- Limited access to resources- Limited life – business

lack permanence beyond the life of the sole proprietor

Partnership

Business owned by 2 or more people

Examples:

Doctors, dentists, lawyers

Partnership

Advantages

- Easy start-up- Shared decision making- Specialization – each

partner can bring his or her talents- Larger pool of assets –

helpful when the business needs to borrow money- Not subject to special

business taxes

Disadvantages

- Unlimited liability- Each general partner

is bound to debt incurred and responsible for paying this debt

- General partners do not have absolute control over their business

- Potential for conflict

Corporations

Business that has a legal identity separate from the owners

Large business owned by stockholders

Stocks: shares of ownership in company

Stockholders: people who invest money in company in hopes of making a profit

Structure of a Corporation

Board of Directors

Officers

Stockholders

Corporations

Advantages

- Limited liability for owners- Transferable ownership

– owners can sell stock and get money in return- Long Life – business

does not end with the death of the owners.- More potential for

growth

Disadvantages

- Expensive and difficult to start up

- Double taxes o Corporations pay taxes on

income.o Stockholders receive

dividends (profits paid out to stockholders)

o Dividends are also taxed- Potential loss of control by the

founders – Board of Directors usually run corporations.

- More legal requirements and regulations

Mergers: when companies combine

Horizontal Merger – joining of two or more firms competing in the same market with the same good or service

Vertical Merger – joining of two or more firms involved in different stages of producing the same good or service.

Conglomerate – merging of more than three businesses that make unrelated products

– a large corporation that produces and sells its goods & services throughout the world.

Multinational Corporation

Multinational Corporations

Advantages

- Provides jobs and products around the world

- Efforts to spread new technology around the world- Increase standard of

living in many poor countries

Disadvantages

- Low wages

- Poor working conditions

Franchise

Semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service

Nonprofit organization

Functions like a business, but does not operate for the purpose of earning a profit

Cooperative

Owned & operated by a group of individuals for their shared benefit

Types: consumer, service, & producer

Sam’s & Costco, closest thing we have to a

“ co-op”