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Chapter 8

Chapter 8. Business Organizations. Types of Organizations. Business Organization – establishment formed to carry on commercial enterprise Three Types Sole Proprietorship Partnerships Corporations. Sole Proprietorships. A business owned and managed by a single individual.

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Chapter 8

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  1. Chapter 8 Business Organizations

  2. Types of Organizations • Business Organization – establishment formed to carry on commercial enterprise • Three Types • Sole Proprietorship • Partnerships • Corporations

  3. Sole Proprietorships • A business owned and managed by a single individual

  4. Advantages of Sole Proprietorships • Easy to Start-Up • Very little paperwork and legal expense • Minimal requirements • Authorization – must obtain a business license • Site Permit – permission to use a building • Pick a business name

  5. Advantages of Sole Proprietorships • Relatively Few Regulations • Sole proprietorships are the least regulated businesses • Major regulation is the city zoning laws – city determines what areas will accommodate each kind of building

  6. Advantages of Sole Proprietorships It’s all mine! • Sole Receiver of Profit • Full Control • Easy to Discontinue

  7. Disadvantages of Sole Proprietorships • Unlimited Personal Liability • Limited Access to Resources • Lack of Permanence I’ve lost everything!

  8. Partnerships • A business organization owned by two or more persons who agree on a specific division of responsibilities and profits

  9. Three Kinds of Partnership • General Partnership – Equal share of responsibility and liability among partners • Usually doctors, lawyers, accountants

  10. Three Kinds of Partnership • Limited Partnership – one partner has unlimited personal liability, others contribute money • Could be any kind of business

  11. Three Kinds of Partnership • Limited Liability Partnership (LLP) – all partners are limited from personal liability • States must grant permission to be an LLP – usually for doctors, lawyers, and dentists

  12. Advantages of Partnerships • Easy to Start • Articles of Partnership – legal agreement of how to share profits and losses

  13. Advantages of Partnerships • Easy to Start • Without articles of partnership, the business falls under the Uniform Partnership Act

  14. Advantages of Partnerships • Shared Decision Making and Specialization • Large Pool of Capital • Taxation – no special taxes on the business

  15. Disadvantages of Partnerships :-@! ;~[ • Unlimited Liability (except with an LLP) • Potential for Conflict

  16. The Main Event Sen. Arlen Specter vs. Sen. Ted Kennedy

  17. Corporations, Mergers, Multinationals • Large entity owned by individual stockholders who all share limited liability for the firm’s debts • Stock – also called shares – a portion of ownership in a corporation

  18. Corporations • Corporations are a separate legal entity from the stockholders who own it – so they’re taxed twice!

  19. Two Types of Corporations • Closely-Held Corporations – majority of stock is passed down through the family

  20. Two Types of Corporations • Publicly Held Corporations – many shareholders buying stock on the open market

  21. Corporate Structure Elect

  22. Advantages of Incorporation • Advantages to the investor: • Limited liability • Shares are transferable

  23. Advantages of Incorporation • Advantages to the corporation • Higher potential for growth • Long lasting • Nearly unlimited capital • Selling bonds

  24. Disadvantages of Incorporation • Difficulty and Expense of Start-Up • Double Taxation • Loss of Control • High Regulations

  25. Combining Corporations - Mergers • Horizontal Mergers – join two or more firms competing in the same market +

  26. Combining Corporations - Mergers • Vertical Mergers – join two or more firms involved in different stages of producing the same good +

  27. Combining Corporations - Conglomerates • Firms that buy other companies that produce totally unrelated goods

  28. Multinationals • Corporations that operate in more than one country at a time • They must pay taxes and obey the laws of each country they operate in • Many have bigger budgets than the country they are in

  29. Business Franchises • Semi-independent business that pays fees to a parent company

  30. Business Franchises • In return for the fees, the business gets exclusive rights to sell the parent company’s product in a certain area

  31. Advantages of Opening a Franchise • Management Training • Standardized Quality • National Advertising Program I’m the same everywhere!

  32. Advantages of Opening a Franchise • Financial Assistance • Centralized Buying Power – the parent company buys in bulk to save everyone money

  33. Disadvantages of Opening a Franchise • High Franchising Fees – parent company gets a share of the profit called a royalty • Strict Operating Standards

  34. Disadvantages of Opening a Franchise • Purchasing Restrictions • Limited Product Line

  35. Cooperative Organizations • A business organization owned and operated by a group of individuals for their shared benefit

  36. Three Kinds of Co-op’s • Consumer Cooperatives – sell merchandise to members at reduced prices • Often require members to work or pay a membership fee

  37. Three Kinds of Co-op’s • Service Cooperatives – same as consumer co-op, but it provides a service • Producer Cooperatives – agricultural co-ops that help farmers sell their product

  38. Nonprofit Organizations • Do not work for profit, but rather to help people • Exempt from income taxes

  39. Nonprofit Organizations • Professional Organizations – improve the image, working condition, and skill level of people in a profession • Business Association – promote the business interests of a geographical area (like a city or a state)

  40. Nonprofit Organizations • Trade Associations – promote the interest of an industry • Labor Unions – organized group of workers that aim to improve conditions, hours, and wages

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