Business Organizations

The Role of Sole Proprietorships

•A sole proprietorship is a business owned and

managed by a single individual who has a

approved business license.

• A business organization is an establishment formed

to carry on commercial enterprise.

• Most sole proprietorships are small.

• They only make about 6 percent of all United

States sales.

Characteristics of Proprietorships

• Most sole proprietorships earn modest

incomes.

• Many proprietors run their businesses part-time.

Characteristics of Proprietorships

Source: Statistical Abstract of the United States

Under $25,000

$25,000 – $49,999

$50,000 – $99,999

$100,000 – $499,999

$500,000 – $999,999

$1,000,000 or more

By Size of Receipts

0.4% 0.9%

70%

12%

8%

9% Mining

Construction

Manufacturing

Transportation

Wholesale trade

Retail trade

Finance, insurance,

real estate

By Type

1% 3%

13%

Agriculture, forestry,

fishing services

Services

3%

5%

16%

8%

2%

49%

Advantages of Sole Proprietorships

1.Ease of Start-Up

2. Relatively Few Regulations

3. Sole Receiver of Profit

4. Full Control

5. Easy to Discontinue

Disadvantages of Sole Proprietorship

1. unlimited personal liability

• Liability is the legally bound obligation to pay debts

2. Sole proprietorships have limited access to resources, such

as physical capital.

3. Cant afford fringe benefits.

4. Sole proprietorships also lack permanence. Owner dies

then the business dies.

5. Must adhere to zoning laws.

Section 2 - Partnerships

Types of Partnerships

1. General Partnership

–partners share equally in both responsibility and liability.

2. Limited Partnership

– In a limited partnership, only one partner is required to be a general partner, or to have unlimited personal liability for the firm.

Carnegie-Illinois Steel blast furnaces in Etna, Pennsylvania (1941)

Limited Partnership Classic Example:

Bloomberg L.P. (You DO NOT Need to write this)

• privately held financial software, news, and data company.

• Bloomberg makes up one third of the $16 billion global financial data market with estimated revenue of $6.6 billion.

• founded by Michael Bloomberg (current Mayor of New York City)

• with the help of Thomas Secunda and other partners (Bloomberg's former coworkers from Salomon Brothers) in 1981 and a

30% ownership investment by Merrill Lynch.

3. Limited Liability Partnership

– A newer type of partnership is the limited liability partnership. In this form, all partners are limited partners.

Attorneys

Dentists

Accountants

Advantages of Partnerships

1.Ease of Startup

2.Shared Decision Making and Specialization

3.Larger Pool of Capital

4.Taxes

Disadvantages of Partnerships

1. Unless the partnership is a limited

liability partnership, at least one

partner has unlimited liability.

2. Bound by each others actions.

3. Has potential for conflict.

Section 3 – Corporations, Mergers,

and Multinationals

• Corporation- a legal entity owned by

individual stockholders.

• Stocks (shares) - represent a

portion of ownership of a

corporation.

1) Closely Held Corporation

Types of Corporations

2) Publicly Held Corporation

Advantages of Incorporation Advantages for the Stockholders

• No responsibility for corporations actions

• Stocks are transferable

Advantages for the Corporation

• Has great potential for growth.

• Bonds

• Can hire the best available capital.

• Corporations have long lives.

Disadvantages of

Incorporation

1)Difficult and expensive to start up

– must have certificate of

incorporation

2)Loss of control

3)Double taxation

4)Must pay dividends

5)Heavily regulated

Corporate Combinations

• Horizontal

mergers

• Vertical

mergers

• Conglomerate

Multinationals (MNCs) • Large corporations headquartered in one country that

have subsidiaries throughout the world.

Multinational corporate

structure: • Horizontally integrated multinational

corporations

• Vertically integrated

multinational corporations

• Diversified multinational

corporations

Advantages of MNCs

• Offer products worldwide.

• spread new technologies and production

methods across the globe.

• Influence culture and politics

• Critics are concerned about wages

and working conditions

Disadvantages of MNCs

Chapter 8 – Section 4

Other Organizations

• business franchise - a semi-independent

business that pays fees to a parent

company in return for the exclusive right

to sell a certain product or service in a

given area.

Franchise Example: Dairy Queen

Franchise Example:

Tim Hortons

Franchise Example: Del Taco

Franchise Example: Denny’s

Franchise Example: NAPA Auto Parts

Franchise Example: El Pollo Loco

Franchise Example: Dunkin’ Donuts

Franchise

Example:

Domino’s Pizza

Advantages to Franchises

• Management training and support

• Standardized quality

• National advertising programs

• Financial assistance

• Centralized buying power

Disadvantages to Franchises

• High franchising fees

and royalties

• Strict operating

standards

• Purchasing restrictions

• Limited product line

Cooperatives

• A cooperative is owned and operated by a

group of individuals for their shared benefit.

• Robert Owen (1771 - 1858) was a social

reformer and a pioneer of the cooperative

movement.

Consumer Cooperatives

•sell their goods to their members at

reduced prices.

Service Cooperatives • provide a service

The Cloyne Court Hotel, a student housing cooperative in Berkeley, California, United States. Owned by students, run by students, for students.

Producer Cooperatives

•are agricultural marketing

cooperatives that help members sell

their products.

Nonprofit Organizations

• Institutions that function like business

organizations, but do not operate for

profits.

• Nonprofit organizations are exempt from

federal income taxes.

• Individual states and localities offer

nonprofits exemptions from other taxes

such as sales tax or property tax.

N.P.O. Examples

• Amnesty International

• Oxfam

• Rotary International

• Carnegie Corporation of

New York

• DEMIRA Deutsche

Minenräumer (German

Mine Clearers)

• FIDH International

Federation for Human

Rights

• Goodwill Industries

• United Way

• The National Rifle

Association

• ACORN(now defunct)

• Habitat for Humanity

• Teach For America

• Red Cross

• UNESCO

• IEEE

• World Wide Fund for

Nature

• Heifer International

• SOS Children's Villages.

•