Business Organizations

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Business Organizations

SECTION 1: Sole Proprietorships

SECTION 2: Partnerships

SECTION 3: Corporations

SECTION 4: Other Forms of Organizations

CHAPTER 7

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Objectives:

What are the advantages of establishing a sole proprietorship?

What are the disadvantages of establishing a sole proprietorship?

Sole Sole ProprietorshipsProprietorships

SECTION 1

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Advantages to a sole proprietorship:

easy to start up full control of the business by the owner exclusive rights to profits by the owner

Sole ProprietorshipsSole ProprietorshipsSECTION 1

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Disadvantages to a sole proprietorship:

unlimited liability by the owner sole responsibility of the

owner to operate the business limited growth potential for the business lack of longevity of the firm

Sole ProprietorshipsSole ProprietorshipsSECTION 1

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Objectives:

How do general partnerships

and limited partnerships differ? What are the advantages of organizing a

partnership? What are the disadvantages of organizing a

partnership?

PartnershipsPartnerships

SECTION 2

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Differences between general partnerships and limited partnerships:

General partnerships: Partners have equal decision-making authority. Each partner has unlimited liability.

Limited partnerships: Partners join as investors. Partners have in inactive role in decision

making. Partners have limited liability.

PartnershipsPartnershipsSECTION 2

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Advantages of apartnership:

easy to form allow specialization lets partners share decision making shares business losses between partners


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Disadvantages of a partnership:

unlimited liability by partners potential for conflict among partners lack of business longevity


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Objectives:

How is a corporation formed, and what are the characteristics of a corporation?

How is a corporation organized? How do stocks and bonds differ? What are the advantages and disadvantages

of organizing a corporation?

CorporationsCorporations

SECTION 3

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To form a corporation:

Submit an application for the articles of incorporation and obtain a corporate charter.

CorporationsCorporationsSECTION 3

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Information required by the articles of incorporation:

the name and purpose of the proposed corporation the address of the corporate headquarters the method of fundraising to be used by the corporation the amount of money the corporation expects to raise the names and addresses of the major corporate officers the intended life of the corporation


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Characteristics of a corporation:

legally distinct from its owners treated as an individual—can own property,

hire workers, pay taxes, sue and be sued, and make and sell products


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Corporate structure: sometimes owned by shareholders headed by a board of directors to make decisions run by corporate officers—CEO, president, vice

presidents, etc.—who carry out decisions made by the board

made up of department heads and other employees to perform day-to-day tasks


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Differences between stocks and bonds: Stocks:

represent ownership of the firms issued as shares

Bonds: used to raise money issued as a certificate in exchange for money

borrowed from an investor


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Advantages of organizing a corporation: limited liability separation of ownership from management ease of raising capital longevity


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Disadvantages of organizing a corporation: costly and difficult to obtain a corporate

charter number of government regulations to follow slow decision-making process


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Objectives:

How do vertical combinations differ from horizontal and conglomerate combinations?

Why might a business owner decide to open a franchise?

What is the customer’s role in a cooperative? How does a nonprofit organization differ from

other types of business organizations?

Other Forms of OrganizationsOther Forms of Organizations

SECTION 4

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Difference between vertical combinations and horizontal and conglomerate combinations: Vertical combinations—two or more

companies involved in different production phases of the same good or service

Horizontal combinations—two or more companies produce the same good or service

Conglomerate combinations—two or more companies produce unrelated products

Other Forms of OrganizationsOther Forms of OrganizationsSECTION 4

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Vertical Combination in History

United States Steel Corporation, 1901 Andrew Carnegie Merged two or more companies involved in different

production phases of the same good or service Combined companies that owned

ore deposits, iron mines, steel mills,

railroads, and shipping lines Today = USX 10 % of all

US manufactured steel

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Horizontal Combination in History

Standard Oil John D. Rockefeller Merged two or more companies producing

the same good or service “oil refining” Later broken up as a “trust”

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Benefits of opening a franchise to a business owner:

A business owner can reduce the overall costs associated with starting a business because: employee training is often provided by parent

company advertising is sometimes paid for by parent

company it can use the parent company’s name


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The customer’s role in a cooperative: owns a share in the business shares the expense of running the business


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Differences between a nonprofit organization and other types of business organizations:

not focused on financial gain income not taxed by the government


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1.1. Why is a sole proprietorship the easiest type of business to establish?

2.2. How does forming a partnership solve many of the problems that are associated with sole proprietorships?

3.3. Compare stocks and corporate bonds. How do corporations raise money through stocks and bonds?

4.4. Legally, how is a corporation treated as an individual?

Wrap-UpWrap-UpCHAPTER 7

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5.5. Explain how vertical combinations differ from horizontal combinations. Describe how Andrew Carnegie created a vertical combination.

6.6. How do nonprofit organizations differ from other forms of business organizations?

Wrap-UpWrap-UpCHAPTER 7

Business Organizations

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