Forms of
Business
Organization
Targets
Compare and contrast the following forms of
business organization: sole proprietorship,
partnership, and corporation.
Explain the function of profit in a market
economy as an incentive for entrepreneurs to
accept the risks of business failure.
3 Main forms of Business
Organizations
1. Sole Proprietorship – form of business in
which there is one owner
2. Partnership – type of business
organization in which there are two or
more owners
3. Corporation – organization of people
legally bound together by a charter to
conduct some type of business
Sole Proprietorship
ADVANTAGES Easy to start up
Complete Control
Profits stay with the owner
Less taxes
Pride of ownership
Easy to get out
DISADVANTAGES Unlimited liability – owner is
personally and fully
responsible for all losses and
debts of the business
Difficult to raise money
Limited life of the business –firm legally ceases to exist
when the owner dies, quits,
or sells the business
Partnership
ADVANTAGES Easy to start up
Combination of skills
Not difficult to raise money
Little governmental
regulation
DISADVANTAGES Each partner is fully
responsible for the acts of
all other partners
Unlimited liability
Profits are shared
Limited life of business
Disagreements
Corporation
ADVANTAGES Easy to raise funds
Limited liability – risks are
shared
Unlimited life
Easy to transfer ownership
DISADVANTAGES Difficult and expensive to
start
Less direct control –shareholders have little voice in how the business is ran
Double taxation
More government regulation
Sole
Proprietorship?Partnership? Corporate?
J. Jordan
Bobo, White, &
Hunt Law Office
McDonald’s
The
Pomegranate
Buckle
Craig and
Wheeler Reality
What type of
Business Organization is it?
√
√
√
√√
√
Stocks, Shareholders,
Dividends Oh My!
Stock – ownership certificates in the firm sold to
investors called stockholders or shareholders
Stockholders own a portion of the corporation
Money gained from the sale of the stock helps
launch the corporation
Once the corporation becomes profitable, it
may issue dividends – portion of the
corporation’s earnings to each stockholder
Shareholders elect the
Board of Directors select the
President hires the
VP - Sales VP - Production VP - Finance
Domestic
International
Quality
Control
Research and
DevelopmentPayroll
Common Stock vs.
Preferred Stock
Common Stock – represents basic ownership of a
corporation
1 vote for each share of stock
Vote is used to elect the board of directors
Preferred Stock – represents nonvoting ownership
shares of the corporation
No voting rights
Double Taxation – Double
Whammy!
Stockholder dividends are
taxed twice
1. When the corporation pays
taxes on its profits
2. When investors report their
dividends as personal income
Business
Growth and
expansion
Targets
Analyze the various ways and reasons that
firms grow either through reinvestment of
financial capital obtained through
retained earnings, stock issues and
borrowing, or through horizontal, vertical,
and conglomerate mergers.
How Can Businesses Grow?
Reinvestment – Putting profits back into the business
Mergers – Combining two or more businesses to form one business
Two Types of Mergers
Horizontal
Vertical
Horizontal Merger
Combination of two or more firms
producing the same kind of
product
United Name
Continental
Logo
Vertical Merger
Combination of firms
involved in different
stages of
manufacturing or
market (different types
of businesses)
Dairy Farm
+
Milk Delivery
Service
+
Ice Cream Parlor Shoppe
Why do businesses merge?
Grow faster
Become more efficient
Deliver a better product
Eliminate a rival
Change its image
What Do you Think, When You See…?
ABC Family, ESPN,
Marvel Entertainment,
themeparks, cruiselines Instruments, archery,
electronics, Watercrafts,
ATVs
Electronics,
appliances,
household products
Conglomerates
A firm with four or more businesses making
unrelated products with no single business
responsible for a majority of its sales
Some firms hope to protect their overall sales
and profits by not “putting all their eggs in
one basket.”
Not many in the U.S.
List of conglomerates
Multinationals
Advantages Ability to move resources,
goods, services and financial capital across national borders
Generates technology and new jobs in areas that may need it
Lower cost production and higher quality output
Disadvantages Abuse power by
paying low wages to workers
Exporting scarce natural resources
Interference with development of local businesses
Corporation producing and selling with no national
boundaries and whose business is located in several
countries
General Motors, Sony, Mitsubishi, Nissan
What businesses would you like to see merge? Explain the benefits of the merger. What kind of merger would it be?
Nonprofit
Organizations
Targets
Summarize the role and historical
impact of economic institutions,
such as labor unions, multinationals,
and nonprofit organizations, in
market economies.
What is a Nonprofit
Organization?
Economic organization that
operates like a business but does
NOT seek financial gain
http://www.forbes.com/top-
charities/list/#tab:rank
Q: Are you involved in any
nonprofit organizations?
Varieties of Nonprofit Organizations
1. Community Organizations –Churches, schools, hospitals, welfare groups,
etc.
2. Cooperatives/CO-OP – A
voluntary association formed to carry on some
kind of economic activity that will benefit its
members
Cooperatives/Co-op
1. Consumer Cooperatives – voluntary association that
buys bulk amounts of goods such as food or clothing on behalf of its
members
Goodwill, Bulk Food Stores, Housing
2. Service Cooperatives – provides services such as
insurance, credit, or child care to its members, rather than goods.
Ascend Federal Credit Union, Farm Bureau
3. Producer Cooperatives – helps members promote or
sell their products
Co-op
Labor, Professional, and
Business Organizations
Labor Unions - organization of workers formed to
represent its members’ interests in various employment matters
National Education Association
Professional Associations – consists of people
in a specialized occupation interested in improving the working
conditions, skill levels, and public perception of the profession
American Medical Association (AMA)
Business Associations Chamber of Commerce, Better Business Bureau
Government Involvement Direct Involvement
U.S. Postal Service (USPS)
Tennessee Valley Authority (TVA)
Federal Deposit Insurance Corporation (FDIC)
Public Colleges and Universities
Police and Fire Protection
Public roads, libraries, parks
Indirect Involvement
Monitoring and regulating public utilities
Social Security, Medicare, WIC
Financial aid to college students
Unemployment compensation
Role is direct, because the
government supplies a good
or service that competes with
private businesses.
Gov’t plays an indirect
role when it acts as an
umpire to help the
economy operate
smoothly and efficiently.
www.isidewith.com