Business Business OrganizationsOrganizations

Chapter 3Chapter 3

Goals & ObjectivesGoals & Objectives

1.1. Characteristics of Business Organizations.Characteristics of Business Organizations.

2.2. Advantages & Disadvantages of Business Advantages & Disadvantages of Business Organizations.Organizations.

3.3. Structure & Features of a Corporation.Structure & Features of a Corporation.

4.4. Expanding business profits & growth.Expanding business profits & growth.

5.5. Mergers: Types & Causes.Mergers: Types & Causes.

6.6. Nonprofit organizations.Nonprofit organizations.

7.7. Direct & Indirect role of gov’t in our Direct & Indirect role of gov’t in our economy.economy.

3 Types of Business Org.3 Types of Business Org.

1. 1. Sole ProprietorshipsSole Proprietorships: owned : owned and operated by one person.and operated by one person.

2. 2. PartnershipsPartnerships: jointly owned by : jointly owned by two or more persons.two or more persons.

3. 3. CorporationsCorporations: separate legal : separate legal entity having all the rights of an entity having all the rights of an individual.individual.

Business OrganizationsBusiness Organizations

Sole ProprietorshipsSole Proprietorships

Easiest form of business to start, no Easiest form of business to start, no legal requirements: taxes, fees, legal requirements: taxes, fees, regulationsregulations

70+% of all business start-ups are sole 70+% of all business start-ups are sole proprietorshipsproprietorships

15+% of business profits are sole 15+% of business profits are sole proprietorshipsproprietorships

One Owner Business TypeOne Owner Business Type

Sole ProprietorshipsSole Proprietorships

ADVANTAGES: ADVANTAGES: 1. Easy to start.1. Easy to start. 2. Ease of management.2. Ease of management. 3. Owner keeps all profits.3. Owner keeps all profits. 4. 4. Owner does NOT have to pay taxesOwner does NOT have to pay taxes!! 5. Psychological satisifaction.5. Psychological satisifaction.

Sole ProprietorshipsSole Proprietorships

►DISADVANTAGES: DISADVANTAGES: ►1. Unlimited Liability—personally 1. Unlimited Liability—personally

responsible for losses and debts.responsible for losses and debts.►2. Difficult to raise start-up money.2. Difficult to raise start-up money.►3. Lack of capital to purchase inventory.3. Lack of capital to purchase inventory.►4. Limited Managerial experience.4. Limited Managerial experience.►5. Difficult to attract qualified employees.5. Difficult to attract qualified employees.►6. Limited Life—most fail in first two 6. Limited Life—most fail in first two

years.years.

Partnerships

2 types of partnerships:

1. General Partnership—ALL partners are equally responsible for financial management and obligations.

2. Limited Partnerships—ONE partner operates with autonomy. 51% Bi-Laws written by attorney.

General & Limited Partnerships

Partnership AdvantagesPartnership Advantages

1. Easy to establish.1. Easy to establish.2. Ease of management.2. Ease of management.3. 3. Lack of special taxes. Lack of special taxes. 4. Larger and more capable of 4. Larger and more capable of

attracting financial capital and attracting financial capital and contracts.contracts.

Partnership DisadvantagesPartnership Disadvantages

• 1. One partner is fully accountable for the other partner’s mistakes.

• 2. Limited Partnership: limited partner not accountable for lawsuits or

• 3. Bankruptcy: court granted permission to cease or delay payments.

• 4. Conflict between partners and tax obligations.

CorporationsCorporations

• A separate legal entity!A separate legal entity!

• Forming a Corporation: Forming a Corporation:

• 1. 1. chartercharter: government permission to : government permission to create is granted.create is granted.

• 2. 2. stockstock: ownership of certificates, : ownership of certificates, shares sold to shares sold to shareholdersshareholders: : stockholdersstockholders::

• 3. 3. dividenddividend: profit from shares: profit from shares

S-Corporation vs. C-S-Corporation vs. C-CorporationCorporation

Two types of StockTwo types of Stock

• Common StockCommon Stock: : basic ownership basic ownership with the right to with the right to vote on Board of vote on Board of Directors….more Directors….more expensive to expensive to purchase.purchase.

• Public/Professional Public/Professional Mgt. TeamMgt. Team

• Preferred StockPreferred Stock: : nonvoting nonvoting ownership. Stock ownership. Stock pays dividends. pays dividends. Preferred stock Preferred stock gets paid first.gets paid first.

Common or Preferred?Common or Preferred?

Corporation AdvantagesCorporation Advantages

1.1. Ease of financial capital: stock Ease of financial capital: stock (shares)(shares)

2.2. BondsBonds: IOU: IOU’’s (s (principal-interestprincipal-interest:):)

3.3. Can afford professional managers.Can afford professional managers.

4.4. Provides limited liability Provides limited liability (LLC)!!!!!!!!!!!(LLC)!!!!!!!!!!!

5.5. Ease of transferring ownership.Ease of transferring ownership.

Bonds vs Preferred Bonds vs Preferred DividendsDividends

Corporation DisadvantagesCorporation Disadvantages

• 1. difficulty and expense of obtaining a 1. difficulty and expense of obtaining a charter.charter.

• 2. Owners have little autonomy over daily 2. Owners have little autonomy over daily business operations.business operations.

• 3. 3. DOUBLE TAXATIONDOUBLE TAXATION: profits are taxed : profits are taxed twice (business tax, personal income tax)twice (business tax, personal income tax)

• 4. subject to government regulation (SEC)4. subject to government regulation (SEC)

Obama Tax IncreasesObama Tax Increases

Government/Business Regulation

1. State Gov’t: sets insurance rates.2. State Gov’t: sets utility rates.3. State Gov’t: sets banking rules.4. State Gov’t: sets licensing requirements.5. State Gov’t: Regulates Education.6. State Gov’t: Regulates Transportation.Examine your State’s Success Rate:

Business GrowthBusiness Growth

MergerMerger: two or businesses to form a : two or businesses to form a single firm.single firm.

Net IncomeNet Income: : Gross-Taxes-Gross-Taxes-Expenses=Net IncomeExpenses=Net Income

DepreciationDepreciation: loophole for wear on : loophole for wear on capital goods.capital goods.

Mergers & AcquistionsMergers & Acquistions

Reasons for MergingReasons for Merging

1. Efficiency1. Efficiency

2. Acquire new product lines (patents)2. Acquire new product lines (patents)

3. Eliminate competition.3. Eliminate competition.

4. Lose corporate identity: 4. Lose corporate identity:

5. Lessen management expenses.5. Lessen management expenses.

Types of MergersTypes of Mergers

1. horizontal merger: two or more 1. horizontal merger: two or more producing the SAME goodsproducing the SAME goods

2. vertical merger: LINE merging, 2. vertical merger: LINE merging, auto company with tire companyauto company with tire company WAL-MART: Wholesale (SamWAL-MART: Wholesale (Sam’’s), Retail s), Retail

(Wal-Mart), Discount (Bud(Wal-Mart), Discount (Bud’’s) Horizontals) Horizontal WAL-MART: Retail goods, trucking WAL-MART: Retail goods, trucking

company, gas station, car sales, banks, company, gas station, car sales, banks, etc…etc…

ConglomeratesConglomerates

4 or more business’ making different 4 or more business’ making different products that do not produce a products that do not produce a majority of its salesmajority of its sales– Diversification:Diversification:”” put all their eggs in one put all their eggs in one

basketbasket””

Conglomerate ExamplesConglomerate Examples

MultinationalsMultinationals

Operations in a number of different Operations in a number of different countries.countries.– --Free Trade has given growth to --Free Trade has given growth to

multinationals? Explain.multinationals? Explain.– Free Trade has bankrupted America’s: Free Trade has bankrupted America’s:

Social Security & Medicare Trust FundsSocial Security & Medicare Trust Funds– 1. abuse power by: low wages, natural 1. abuse power by: low wages, natural

resources, causing bankruptcy of native resources, causing bankruptcy of native business. (9/11 Terrorist Attack?)business. (9/11 Terrorist Attack?)

Most Popular MultinationalsMost Popular Multinationals

Nonprofit OrganizationsNonprofit Organizations

No financial gain: YMCA, public-private No financial gain: YMCA, public-private schools, churches, Salvation Army, Red schools, churches, Salvation Army, Red Cross, etc….Cross, etc….

Pay no taxes but are eligible for Tax Pay no taxes but are eligible for Tax Subsidies and federal financing.Subsidies and federal financing. PAC’s—Iron Triangles---Special InterestsPAC’s—Iron Triangles---Special Interests

CooperativesCooperatives

Business to protect and profit itBusiness to protect and profit it ’’s s members: members:

1. 1. Consumer CooperativeConsumer Cooperative: Sam: Sam’’s s ClubClub

2. 2. Service CooperativeService Cooperative: Credit Unions: Credit Unions 3. 3. Producer CooperativeProducer Cooperative: Farmers : Farmers

Co-opCo-op

Less Government Regulation.Less Government Regulation.

Producer CooperativesProducer Cooperatives

Labor UnionsLabor Unions

Labor Unions: benefits itLabor Unions: benefits it’’s members s members onlyonly

Collective BargainingCollective Bargaining: pressure for : pressure for government protection. government protection. AFL-CIOAFL-CIO

Professional AssociationsProfessional Associations

1. AMA: 1. AMA: 2. ABA:2. ABA: 3. NEA: 3. NEA:

Want government to pass laws to Want government to pass laws to limit their competition!limit their competition!

Chamber of CommerceChamber of Commerce

Promotes community: Bass Pro Promotes community: Bass Pro Shops. How did Spanish Fort attract Shops. How did Spanish Fort attract them? What are the benefits of them? What are the benefits of getting Bass Pro Shops?getting Bass Pro Shops?

BBB: BBB:

Direct Role of Direct Role of GovernmentGovernment

TVA: powerTVA: power FDIC: banking protectionFDIC: banking protection US Post OfficeUS Post Office SEC, IRS, DEA, BATFE, SEC, IRS, DEA, BATFE,

OBAMACARE, FTC, WTO, EPA, OBAMACARE, FTC, WTO, EPA, OSHA, FDA, FCC, NLRB, FAA, OSHA, FDA, FCC, NLRB, FAA, EEOC, CPSA, NRC, FERCEEOC, CPSA, NRC, FERC

AmtrackAmtrack

2013 Government 2013 Government SpendingSpending

Indirect Role of Indirect Role of GovernmentGovernment

GovGov’’t regulated utilities, cable television.t regulated utilities, cable television. Social Security/MedicareSocial Security/Medicare Pell GrantsPell Grants Unemployment Compensation.Unemployment Compensation. Food StampsFood Stamps MedicaidMedicaid WelfareWelfare WICWIC ObamacareObamacare Subsidies & Business BailoutsSubsidies & Business Bailouts