Business Organization

Sole Proprietorship, Partnerships and Corporations

Four Elements of a Business

1. Expenses2. Advertising3. Receipts and Record Keeping4. Risk

Calculating Profits

Revenue - Expenditures = Profit

Sole Proprietorship

Business owned by one person 73% of all businesses

Advantages/Disadvantages of a Sole Proprietorship

Advantages Receive all profits Decisions all yours (management) Lower tax rates Personal satisfaction

Disadvantages Losses not shared Unlimited liability Must make all decisions Very time consuming Financial capital usually low When owner dies – business usually closes

Partnership

A business that two or more individuals own and operate.

Many professional occupations are partnerships (ex. doctors, dentist, etc.)

Types of Partnerships1. Limited Partnership2. Joint Ventures

Advantages/Disadvantages of Partnership

Advantages Losses shared More efficient – work in expertise Lower taxes than corporations Combines capital investment of two people

Disadvantages Share profit If one partner cannot pay; the other is liable Must be able to get along Capital borrowing is limited to combined assets of the two partners Financial capital usually low If a partner dies – must be ended or reorganized

Corporations

An organization owned by many people but treated by the law as though it were a person.

In order to be a corporation:1. Register with the state government2. Sell stock3. Elect Board of Directors

Corporation continued

Selling Stock:1. Common Stock – voting rights/dividend?2. Preferred Stock – no voting rights/dividend guaranteed; first claim if

bankrupt Elect Board of Directors – hires officers to corporation NASDAQ; NYSE; Dow Jones

Starting a Corporation

Dow Jones Industrial Average

Corporate Structure - Example

Corporation continued

Franchises A contract in which a franchisor sells to

another business the right to use its name and sell its product

Advantages/Disadvantages of Corporation

Advantages Stockholders do not have devote time to company to make

money Limited liability Management is divided among many people Can issue stock to raise capital

Disadvantages Decision making can be slow Corporate profit is taxed Individual stock owners have very little say in company Corporation can continue indefinitely

Business Growth and Expansion

Growth Through Reinvestment

– Income statements – report showing business’s sales, expenses, net income and cash flow

Chapter 3 Section 2

Growth Through Mergers

– Horizontal Merger – (pg. 75)

– Vertical Merger– Conglomerates – at least 4 businesses – unrelated (ex. Disney – see next slide)

– Multinationals BP, Royal Dutch Shell, Nabisco

$8.5 billion

$1 Billion

Conglomerates in the U.S.

Non Profit Organizations

Community Organizations and Cooperatives– Cooperatives

Consumer cooperatives Service cooperatives Producer cooperatives (farm cooperatives)

Chapter 3 Section 3

Labor, Professional and Business Organizations

– Labor Unions Collective Bargaining

– Professional Associations American Medical Associations (AMA)

– Business Associations Better Business Bureau (BBB)