Business OrganizationsBusiness OrganizationsWhat is a Sole proprietorship?What is a Sole proprietorship? a business owned and managed by a singlea business owned and managed by a single

individualindividual most popular type of business in US – most popular type of business in US –

about 75% US businessesabout 75% US businesses since most are small, account for only about since most are small, account for only about 6% 6%

US salesUS sales

Advantages & Disadvantages ?Advantages & Disadvantages ?

Advantages :Advantages : ease of starting upease of starting up full controlfull control earns all profitearns all profit

Disadvantages :Disadvantages : lack of permanencelack of permanence limited access to resources, capital, & laborlimited access to resources, capital, & labor unlimited liabilityunlimited liability

Characteristics of sole Characteristics of sole proprietorshipsproprietorships

What is a partnership?What is a partnership?

a partnership is a business organization owned a partnership is a business organization owned by two or more peopleby two or more people

In US -about 7 % of all businesses, In US -about 7 % of all businesses,

10% of all income10% of all income General partnership – partners share equally in General partnership – partners share equally in

responsibility and liabilityresponsibility and liability Limited partnership – one partner has control Limited partnership – one partner has control

and liability – others contribute $ and share and liability – others contribute $ and share profitsprofits

Limited liability partnership- all partnersLimited liability partnership- all partners

are limited from personal liability in certain are limited from personal liability in certain situationssituations

Advantages :Advantages : Ease of start upEase of start up shared decision making & responsibilityshared decision making & responsibility

-- different strengths and skills-- different strengths and skills more resources, capitalmore resources, capital

Disadvantages:Disadvantages: unlimited liabilityunlimited liability potential for conflictpotential for conflict split profitssplit profits

What is a corporation?What is a corporation? A corporation is a larger businessA corporation is a larger business

owned by individual stockholdersowned by individual stockholders

Stocks – share of ownershipStocks – share of ownership

Stockholders have limited liability for business Stockholders have limited liability for business debts – can only lose what was investeddebts – can only lose what was invested

A corporation is a legal entity – must payA corporation is a legal entity – must pay

taxes, can enter into contracts & lawsuitstaxes, can enter into contracts & lawsuits

How are corporations structured?How are corporations structured? Stockholders elect a board of directorsStockholders elect a board of directors

Board makes important decisions & appoints Board makes important decisions & appoints corporate officers who are in chargecorporate officers who are in charge

CEO – chief executive officer (like the CEO – chief executive officer (like the president of the corporation)president of the corporation)

Corporations raise money by selling stockCorporations raise money by selling stock Can borrow money by selling bondsCan borrow money by selling bonds

Advantages of corporationsAdvantages of corporations

Investment capital – $$ from stocks, Investment capital – $$ from stocks, bondsbonds

Stock owners have limited liability – can Stock owners have limited liability – can only lose what they put inonly lose what they put in

Can out-live original founders Can out-live original founders

(ex- Walt Disney corp)(ex- Walt Disney corp)

Disadvantages of corporationsDisadvantages of corporations

Double tax – corporations pay income taxDouble tax – corporations pay income tax

& stockholders pay personal income tax on & stockholders pay personal income tax on money earned through stocksmoney earned through stocks

More difficult & expensive to startMore difficult & expensive to start More government regulationMore government regulation Founders can lose control of company to Founders can lose control of company to

large stockholderslarge stockholders Decisions not always made in best Decisions not always made in best

interest of stockholdersinterest of stockholders

What are mergers?What are mergers?

Horizontal mergersHorizontal mergers Combine two or more firms in the same Combine two or more firms in the same

marketmarket Examples:Examples:

- Standard Oil – Rockefeller’s oil monopoly- Standard Oil – Rockefeller’s oil monopoly

- Diamler Benz & Chrysler - Diamler Benz & Chrysler Diamler Diamler ChryslerChrysler

- Exxon/Mobil- Exxon/Mobil

- Disney & Miramax- Disney & Miramax

- others…..???- others…..???

Vertical mergersVertical mergers

Combine two or more firms involved in Combine two or more firms involved in different stages of production for the same different stages of production for the same good or servicegood or service

Examples:Examples:

- Carnegie Steel – Carnegie owned iron - Carnegie Steel – Carnegie owned iron mines, steel manufacturing plants, railroads mines, steel manufacturing plants, railroads & shipping& shipping

- Time Warner Cable & Turner Corp- Time Warner Cable & Turner Corp

- Disney & ABC- Disney & ABC

What is a conglomerate??What is a conglomerate??

Conglomerate – combines companies Conglomerate – combines companies producing unrelated products or producing unrelated products or servicesservices

Examples:Examples:

- Johnson & Johnson- Johnson & Johnson

- Proctor & Gamble- Proctor & Gamble

- 3M- 3M

What is a franchise? A semi-independent business that pays

fees to a company in return for exclusive rights to sell certain products or services in an area

….Kinda like a business with a mother company…..

Examples???

What are some advantages and disadvantages of owning a franchise?

Advantages: Financial assistance

National advertising

Standardized quality Centralized buying power Training and support

Disadvantages: High franchising fees and royalties…what are royalties? …a percentage of the profits paid to

the parent company Strict operating standards and procedures Limited product line

…and….some more stuff you should know…….

Competition good for consumers …..why? keeps prices low, quality high

Monopoly a single seller dominates a market limits competition

FTC – Federal Trade Commission – watches mergers – can not limit competition

Anti-trust laws -- against monopolies