Business Organization. General Information Business firm—an organization that brings together the...
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Transcript of Business Organization. General Information Business firm—an organization that brings together the...
Business Organization
General Information
Business firm—an organization that brings together the factors of production for the purpose of producing or distributing goods and services
80% of total production comes from private businesses Firms must pass the market test Specialization and division of labor Risk Can group businesses by industry or legal form of
organization
Sole Proprietorship
Definition Business firm owned by a single individual or married couple who makes all of the decisions and receives all of the profits
Most common type nearly 80% of all businesses
Represent about 6% of business receipts Most businesses start as sole proprietorships
Advantages of Sole Proprietorships
Easy and inexpensive to create Owner receives all profit Owner has complete discretion Owner personally knows customers and
employees Minimal government regulation Usually pays less income tax than other
business forms
Disadvantages of Sole Proprietorships
Unlimited liability Limited fundraising ability Limited life Owner may lack special skills and
abilities
How to Set Up A Sole Proprietorshiphttp://www.citmedialaw.org/legal-guide/california/becoming-sole-proprietor-california
Prepare a business plan Decide on a business name and register it Obtain local licenses
Business license-legal document that allows one to operate a business
http://www01.smgov.net/finance/licenses/pdf/BusinessLicenseInformationHandout.pdf
http://www01.smgov.net/finance/licenses/pdf/Application.pdf Determine tax and regulatory obligations and apply for EIN Open bank account Other considerations
Zoning laws—where one can legally locate a business
Partnerships
Form of business organization that is collectively owned by two or more people who jointly make business decisions, share the profits and bear financial responsibility
for the loss
Only about 9% of businesses, about 4% of all business receipts
Partnerships
General Partners Limited Partners Limited Liability Partnership Uniform Partnership Act Joint Venture Strategic Alliance
Advantages of Partnerships
Inexpensive/easy to create General partners have complete control Skills/abilities can be pooled Improved credit position Less tax burden than corporations Elimination of competition Continuity of business Profits split between partners
Disadvantages of Partnerships
Unlimited liability Partners must share profits Disagreements among partners Each partner is bound by the contracts of
the others If partner dies, partnership ends Difficulty withdrawing from partnership
Making a Partnership Work
Partners should…. Share business responsibilities Put everything in writing Always be honest about how the business is
doing Establish a partnership agreement in
advance to establish guidelines about profit sharing, business responsibilities, and what happens if a partner dies/wants to quit
Corporations
Businesses that are registered or chartered by a state
Roughly 20% of firms, but account for 90% of business receipt
Articles of incorporation a written application requesting permission to form a corporation
Charter the legal authorization to organize a business as a corporation
CorporationsClosely Held Corporation limited number of
shareholders Publicly Held Corporation stock owned by
members of the general public and openly traded
Multinational Corporation firm managed from one country, but derives roughly 25% of its revenue from operations outside of its home country
Conglomerate corporation made up of several different firms that supply diverse products (Hyundai)
Corporate Structure
Corporate Structure Video http://www.investopedia.com/video/play/
corporate-structure
Advantages of Incorporation
Fundraising ability Limited liability Unlimited life Specialized management Risks of business are spread among
many owners
Disadvantages of Incorporation
More difficult/expensive to start Owners have less direct control Double taxation (profits and then as
shareholder’s dividend income) Limited to activities stated in articles of
incorporation
Financing a Corporation
Bonds certificate stating the amount the corporation has borrowed from the holder of the bond and the term of repayment
Stockshare of ownership in a corporation Common stockgives owners voting rights,
capital appreciation, dividends (quarterly) Preferred stock guaranteed dividends and
first to be paid dividends
Advantages of Multinationals
Gaining a strong foothold into the international market (volume)
Ability to take advantage of cheaper factor, location and distribution costs
Tax incentives Access to new technologies and
methodsresearch and development
Disadvantages of Multinationals
Trade restrictions Taxes or tariffs imposed on imports from
other countries Limited quantities (quotas) of imports Management problems
Comparison
Sole Proprietorship
Partnership Corporation
Start-Up Costs
Liability
Continuity of Business
Control of Business
Distribution of Profits
Transfer of Interest
Business Franchise
The right to sell a good or service within an exclusive market
Franchise royalties: money paid by the franchisee to the franchisor to cover the franchisor’s overhead costs (education, training, branding etc.)
Advantages of Franchises
High likelihood of success given name recognition.
Franchisee seen as less risky of a borrower
High level of training and support provided by franchise company
Franchise company provides national level advertising (franchisee avoids some of this cost)
Disadvantages of Franchises
Can be costly to implement depending on royalty payments established by franchise agreement
Limited creativity in effort to maintain brand.
Attention to detail
a must.
Other Organizations
Cooperative Consumer Cooperative Service Cooperative Producer Cooperative Nonprofit Organization Professional Organization
Mergers
Mergers
Types Horizontal Vertical
Conglomerate
The Federal Trade Commission (FTC)
Established in 1914 Evaluates potential mergers Identifies anti-competitive behavior Promotes competition in key industries Provides information to consumers
Competition
Wealth of Nations Free markets guided through competition
in a way that individuals, acting in their self interest, will be led to achieve what is best for society
Economic efficiency if waste occurs, firm loses part of profit
Firms do not make excessive profit Consumers benefit from lower prices and
higher quality