FORMS OF BUSINESS

ORGANIZATIONS, 3-1, P.P. 57-

66
THE SOLE PROPRIETORSHIP,
THE PARTNERSHIP, THE
CORPORATION
THE SOLE PROPRIETORSHIP
• EASIEST TO SET UP.
• EARNS 1/5TH OF NET INCOME EARNED BY
ALL BUSINESSES.
• ADVANTAGES-EASY TO START UP, EASY
TO MANAGE, OWNER KEEPS ALL PROFITS,
DOES NOT PAY SEPARATE BUSINESS TAX,
PSYCHOLOGICAL SATISFACTION (IT’S
YOURS!), EASE OF GETTING OUT OF
BUSINESS.
 SOLE PROPRIETORSHIP
(CONT’D)
• DISADVANTAGES-UNLIMITED
LIABILITY (PERSONALLY
RESPONSIBLE FOR ALL DEBTS),
HARD TO RAISE CAPITAL (MONEY $),
SIZE AND EFFICIENCY (SMALL),
USUALLY LIMITED EXPERIENCE
RUNNING A BUSINESS, LIMITED LIFE
(DIES WITH THE OWNER)
 THE PARTNERSHIP
• GENERAL PARTNERSHIP-ALL
PARTNERS RUN IT.
• LIMITED PARTNERSHIP-ONE
PARTNER NOT ACTIVE IN RUNNING
BUSINESS.
• EASY TO START (YOU GET A
DOCUMENT MADE CALLED ARTICLES
OF PARTNERSHIP)
 PARTNERSHIP (CONT’D)
• ADVANTAGES-EASY TO START, EASE OF
MANAGEMENT, NO SPECIAL TAXES,
EASIER TO ATTRACT FINANCIAL CAPITAL
(MONEY $), LARGER SIZE MAKES IT MORE
EFFICIENT, EASIER TO ATTRACT TALENT.
• DISADVANTAGE-YOU ARE FULLY
RESPONSIBLE FOR THE ACTS OF YOUR
PARTNERS (LIMITED PARTNERSHIP-YOU
ARE LIMITED IN LIABILITY TO THE SIZE OF
YOUR INVESTMENT).
 CORPORATIONS-A SEPARATE
LEGAL ENTITY
• FORMING-GET A CHARTER (IT
STATES THE NUMBER OF SHARES OF
STOCK), SELL STOCK TO INVESTORS
• IF PROFITABLE, INVESTORS RECEIVE
DIVIDENDS (PROFITS)
• COMMON STOCK (BASIC);
PREFERRED STOCK (RECEIVE
DIVIDENDS FIRST)
 ADVANTAGES AND
DISADVANTAGES
(CORPORATION)
• ADVANTAGES-EASY TO RAISE FINANCIAL
CAPITAL (MONEY$), CAN HIRE
PROFESSIONL MANAGERS TO RUN,
LIMITED LIABILITY (CORPORATION AND
NOT OWNERS IS RESPONSIBLE),
UNLIMITED LIFE.
• DISADVANTAGES-DIFFICULT AND
EXPENSIVE TO GET CHARTER,
SHAREHOLDERS HAVE LITTLE SAY,
DOUBLE TAXATION, MORE GOV’T
REGULATION
 BUSINESS GROWTH AND
EXPANSION, 3-2, P. 68-73
• MERGER-A COMBINATION OF TWO
OR MORE BUSINESSES TO FORM A
SINGLE FIRM
• GROWTH THROUGH REINVESTMENT-
TAKE MONEY FROM SALES AND RE-
INVEST IN COMPANY.
GROWTH THROUGH MERGERS
• WHEN FIRMS MERGE, ONE OF THEM
GIVES UP ITS LEGAL IDENTITY.
• REASONS FOR MERGING-NEED TO
GROW, EFFICIENCY, ACQUIRE NEW
PRODUCT LINES, TO CATCH UP WITH
OR ELIMINATE RIVALS, TO LOSE ITS
CORPORATE IDENTITY (IF ITS BAD)
 TYPES OF MERGERS
• HORIZONTAL MERGER-BETWEEN TWO
FIRMS THAT MAKE THE SAME THING.
• VERTICAL MERGER-THE TWO FIRMS DON’T
MAKE THE SAME THING.
TYPES OF BIG CORPORATIONS
• CONGLOMERATE-A FIRM WITH AT LEAST 4
BUSINESSES EACH MAKING UNRELATED
PRODUCTS.
• MULTINATIONAL-A CORPORATION THAT
HAS OPERATIONS IN SEVERAL
COUNTRIES.
 OTHER ORGANIZATIONS, 3-3,
P.P. 75-79
• NONPROFIT ORGANIZATION-OPERATES IN
A BUSINESSLIKE WAY TO PROMOTE IT’S
GOALS RATHER THAN TO SEEK FINANCIAL
GAIN.
• COMMUNITIES AND CIVIC ORGANIZATIONS-
SCHOOLS, CHURCHES, HOSPITALS, ETC.
THEY USE ANY SURPLUS (PROFITS) TO
FURTHER THE WORK OF THEIR
INSTITUTION.
 OTHER ORGANIZATIONS
(CONT’D)
• COOPERATIVES: ASSOCIATION OF PEOPLE
THAT PERFORM SOME ECO ACTIVITY THAT
BENEFITS MEMBERS.
A. CONSUMER COOPS-BUYS GOODS
IN BULK.
B. SERVICE COOPS-PROVIDES A
SERVICE (EX:CREDIT UNION)
C. PRODUCERS’ COOP-HELPS
MEMBERS SELL THEIR PRODUCT.
(EX:OCEAN SPRAY CRANBERRY)
 OTHER ORGANIZATIONS
(CONT’D)
• LABOR UNIONS-COLLECTIVE
BARGAINING
• PROFESSIONAL ASSOCIATIONS-
AMER. MEDICAL ASSO., AMER. BAR
ASSO. (AMA, ABA)
• BUSINESS ASSOCIATIONS-CHAMBER
OF COMMERCE, BETTER BUSINESS
BUREAU
 OTHER ORGANIZATIONS
(CONCLUSION)
• GOVERNMENT- NON-PROFIT
• DIRECT ROLE: PROVIDES A GOOD OR
SERVICE THAT COMPETES WITH PRIVATE
BUSINESS (EX: TVA, FDIC, U.S. POSTAL
SERVICE)
• INDIRECT ROLE-WHEN THE GOV’T ACTS AS
AN UMPIRE FOR FAIRNESS, SUCH AS
REGULATION OF PUBLIC UTILITIES. ALSO,
SOCIAL SECURITY, COLLEGE AID TO
STUDENTS, VET BENEFITS, AND
UNEMPLOYMENT INSURANCE