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Business Organization

CHAPTER 5. Business Organization. 5-1 Business in the U.S. Economy 5-2 Forms of Business Ownership 5-3 Organizational Structure for Businesses. 5-1. Business in the U.S. Economy. Goals Describe the changing status of U.S. employment Discuss the role of business in the U.S. economy

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Business Organization

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  1. CHAPTER 5 Business Organization 5-1 Business in the U.S. Economy 5-2 Forms of Business Ownership 5-3 Organizational Structure for Businesses 5

  2. 5-1 Business in the U.S. Economy Goals Describe the changing status of U.S. employment Discuss the role of business in the U.S. economy Describe the three major types of businesses 5

  3. Key Terms • Contingent Worker (contract workers) • Producer • Intermediary • Service Business 5

  4. 38. THE CHANGING U.S. JOB MARKET • Employment data • From 1996-2006, total employment grew by 14% • Babyboomers (born 1946-1964 and began retiring in 2010s) • Average age of workers in 2020 will be over 50 • Mini-boom (Millennials) • In 2009, 70% of labor force was white non-Hispanic workers • In 2014, that dropped to 66% with increasing growth rates for Asian, Hispanic, and African-American workers • Since the 1960’s women have joined the workforce and now account for holding about 47% of all jobs. 5

  5. 38. THE CHANGING U.S. JOB MARKET • Pressures on employees • Technology was expected to become a time and stress saver – But the reality was opposite this expectation. • Contingent workers (contract workers) are on the rise as lay-offs, downsizing, and automation have reduced jobs. • Part-time work became the norm. 5

  6. 39. BUSINESS AND THE ECONOMY • Size of businesses Percent of Businesses by Employee Size Source: U.S. Census Bureau 5

  7. 39. BUSINESS AND THE ECONOMY • Roles of business • Employee and pay workers so they can afford to support themselves and their families • Pay taxes to federal, state, and local governments so needed services can be provided for citizens • Make and distribute products and services that are needed by consumers, government, and other businesses 5

  8. 39. BUSINESS AND THE ECONOMY • Impact on a community • Domino effect – • When a large business opens in an area, other businesses will often locate there to support the larger business and the employees. Small businesses may be started to meet the needs of the residents and other businesses. • Successful businesses contribute to more jobs, more income, and a thriving economy in the communities where they operate. 5

  9. 39. BUSINESS AND THE ECONOMY • Business Activities • Generating ideas • Raising capital • Employing and training personnel • Buying goods and services • Marketing goods and services • Maintaining business records 5

  10. 40. TYPES OF BUSINESSES • Producers • Use resources to create products and services • Types: Extractors and Manufacturers • Intermediaries • Involved in selling the goods and services of producers to consumers • Types: Retailers and Wholesalers • Service Businesses • Carry out activities that are consumed by its consumers • Examples include: dentists, physicians, lawyers, painters, web designers, travel agents, dog walkers 5

  11. Checkpoint>> How does a manufacturer differ from an extractor? Answer • An extractor takes natural resources, such as oil or timber, for direct consumption or for use in developing other products. • A manufacturer takes resources supplied by others and converts them into useable products. 5

  12. 5-2 Forms of Business Ownership Goals Understand the three major forms of business ownership Determine when each form of business ownership is most appropriate Recognize other specialized business ownership forms 5

  13. Key Terms • proprietorship • partnership • corporation • partnership agreement • articles of incorporation • franchise 5

  14. 41. BUSINESS OWNERSHIP • Proprietorship~ Business owned and run by just one person (Unlimited Liability) • Partnership~ Business owned and controlled by two or more people (Unlimited Liability) • Corporation~ Separate legal entity formed by documents filed with a state. Owned by one or more shareholders and managed by a board of directors (Limited Liability) 5

  15. Forms of Ownership Source: Internal Revenue Service 5

  16. Checkpoint>> What are the differences between the three main forms of business ownership? Answer • Business forms differ in the ways in which decision-making and investments are made and to whom liabilities are distributed. 5

  17. CHOOSING A FORM OF BUSINESS OWNERSHIP • Choosing a proprietorship~ • Most businesses begin this way and remain this way • Total control is with the owner • Easy to begin- only requires gov’t licenses and/or permits • Tax advantage/disadvantage • ALL income is part of business and expenses can often be written off to reduce income • ALL debts are owner’s responsibility (Unlimited liability) 5

  18. 42. CHOOSING A FORM OF BUSINESS OWNERSHIP (continued) • Choosing a partnership~ • Can sometimes be formed by verbal agreement • BUT most of the time, a written partnership agreement is prepared • Details the rules and procedures that guide ownership and operations • Lists clearly the business name, investments, and partner contributions • Shows how profits and losses will be divided among partners • Defines authority and responsibilities granted to each partner • States how the partnership can be dissolved 5

  19. Partnership (continued • Advantages • More people contribute to the investment in the business • More expertise • Disadvantages • Each partner is responsible for the decisions of all other partners • No protection of personal assets of each partner • Unlimited Liability 5

  20. CHOOSING A FORM OF BUSINESS OWNERSHIP (42. continued) • Choosing a corporation~ • Not just an option for large businesses • Increasing in popularity of small businesses as well • Subject to many more laws and are more difficult to form 5

  21. Corporations (continued) • Treated as an “individual” by gov’t • Must obey laws of the state and must file ‘articles of incorporation’ • Written legal document that defines ownership and operating procedures (corporate bylaws) and conditions • A Board of Directors must be appointed • Must issue shares of stock to investors 5

  22. Corporation (continued) • Advantages~ • Liability is limited to the amount of money invested • Amount of debt of the business does not matter • People can invest in the business and receive part of the profits without having to take part in the day-to-day operations • Can be easily expanded 5

  23. Corporation (continued) • Disadvantages~ • Decision-making is shared among managers, board of directors, and shareholders • Many records are required and more laws regulate corporations than the other two forms of business ownership • Business pays corporate taxes to the government AND investors also pay taxes on individual earnings from the business 5

  24. Checkpoint>> Which form of business ownership is the most complex and difficult to form? Answer • The corporation is more complex to begin than other business forms. • Forming a corporation requires much more bureaucracy, is more subject to government regulations, requires the organization of a board, and must have clearly defined bylaws. 5

  25. 43. OTHER FORMS OF OWNERSHIP • Specialized partnerships and corporations • Limited liability partnership http://legal-dictionary.thefreedictionary.com/Limited+Liability+Partnership • Identifies some investors who cannot lose more than they have invested, BUT they are not permitted to participate in the day-to-day management of the business • Joint Venture • Unique business organized by 2 or more businesses to operate for a limited time for a specific project 5

  26. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Specialized partnerships and corporations (continued) • S-Corporation http://www.irs.gov/businesses/small/article/0,,id=98263,00.html • For small businesses • Offers the limited liability of a corporation • All income is passed through to the owners based on their investment and is taxed on individual earnings • Limited Liability Company (LLC) http://www.irs.gov/businesses/small/article/0,,id=98277,00.html • Newer form of ownership • Combines partnership with corporation • Provides liability protection for owners • Simpler than a corporation • No articles or bylaws are needed 5

  27. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Specialized partnerships and corporations (continued) • Nonprofit corporation • Joined to do something that benefits the public • Education, health care, charity, the arts… • Free from corporate income taxes • Receive grants and donations from individuals and businesses • Must meet government requirements 5

  28. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Cooperatives • Cooperative~ • Owned by members and serves their needs • Two types: • Consumers Cooperatives • Business (Producer’s) Cooperatives • http://www.youngzine.com/article/2012-international-year-cooperatives 5

  29. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Franchises http://www.redhotfranchises.com/ • Written contract granting permission to operate a business to sell products and services in a set way. • Franchiser- company that owns the product or service and grants the right to another business • Franchisee- company that purchases the rights to run the business • Franchisee maintains day-to-day operations and receives profits • Pays fees and percentage of profits to franchiser 5

  30. Checkpoint>> What are the other specialized forms of business ownership? Answer • limited liability partnership • joint venture • S-corporation • limited liability companies (LLC) • nonprofit corporations. • franchise • cooperative 5

  31. Mini-Project • Find and list five franchises that interest you using https://www.franchiseopportunities.com/ 5 pts • For each franchise, answer the following questions: 25 pts • How much liquid capital (minimum cash required) is needed to purchase the franchise? • Are training & support or financial assistance from the parent company provided? • Provide a brief description of the franchise (what the business does, their goals, mission, competitive edge, and other activities, etc.). 30 pts total 5

  32. Organizational Structure for Businesses 5-3 Goals Understand important principles in designing an effective organization Compare alternative organizational structures for businesses 5

  33. Key Terms (continued) • Organization chart~ • Diagram that shows the structure of an organization, classifications of work/jobs, and relationships among those classifications 5

  34. 45. TYPES OF ORGANIZATIONAL STRUCTURES • Functional organization structure • Work is arranged within main business functions such as production, operations, marketing, and human resources • All people with related jobs work together • Advantages and Drawbacks • Matrix organizational structure • Work is structured around specific projects, products, or customer groups • People with varied backgrounds are assigned together because their expertise is required for the project or to serve a customer • Groups may be temporary or long-term 5

  35. FUNCTIONAL Organization Chart 5

  36. FUNCTIONAL ORGANIZATIONAL CHART 5

  37. MATRIX ORGANIZATIONAL CHART 5

  38. Setting Direction (Obj. 44 continued) • Mission statement~ • Short, specific written statement of the reason a business exists and what it wants to achieve. • Goal~ • A precise statement of results the business expects to achieve • Used to define what needs to be accomplished • Policies~ • Guidelines used in making consistent decisions • Procedures~ • Descriptions of the way work is to be done 5

  39. Principles of Effective Organization(Obj. 44 continued) • Responsibility~ • Obligation to complete specific work • Authority~ • Right to make decisions about how responsibilities will be accomplished • Accountability ~ • Taking responsibility for the results achieved • Unity of command~ • Clear reporting relationship for all staff - ‘chain of command’ • Span of control~ • Number of employees who are assigned to a work task and manager 5

  40. Checkpoint>> What problems can result from the use of a functional organizational structure? Answer • Employees in a functional organizational structure may tend to loose sight of overall corporate goals. • Workers tend to be limited to specific duties and may not see their relationship to the organization as a whole. • This can result in lack of interest and motivation over time. 5

  41. Chapter 5-3 and Review • Page 118 • 1-3 and • Choose 4 or 5 5

  42. Chapter 5 Review • Pages 120-123 • 1-23 and • Choose 1 from 24-31 5

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