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Chapter 3

Chapter 3. Business Organization. 3 Types of Organizations . Sole Proprietorship Partnership Corporation . Sole Proprietorship. Businesses owned and run by a single individual Easiest form of business to start Examples : lemonade stand, lawn mowing .

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Chapter 3

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  1. Chapter 3 Business Organization

  2. 3 Types of Organizations • Sole Proprietorship • Partnership • Corporation

  3. Sole Proprietorship • Businesses owned and run by a single individual • Easiest form of business to start Examples: lemonade stand, lawn mowing

  4. Sole Proprietorship Advantages: • You’re your own boss. • easy to start, • easy to manage, • owner can keep all the profits without sharing with other owners, • doesn't have to pay separate business income taxes, determine own hours, • easy to get out of business.

  5. Sole Proprietorship Disadvantages: • owner has UNLIMITED LIABILITY!!! (full responsibility for all losses, debts, and failures), • difficult to raise financial capital, • size might make it inefficient, • owner may have limited managerial experience or financial funds • difficult to get experienced employees, • limited life span in the business.

  6. Partnership Businesses jointly owned and run by two or more people • General Partnership: all partners share responsibilities • Limited Partnership: at least one partner isn't active in daily business activities • Examples: law firms, physician's groups, architectural firms

  7. Partnership Advantages: • easy to start, • easy to manage, • lack of special taxes on partnership, • easy to get financial capital (you have a partner), • more efficient daily operations (ownerships can share the work load), • easier to attract talented workers

  8. Partnership Disadvantages • In General Partnerships, each partner is fully responsible for actions of other partners. • In Limited Partnerships, a partner's responsibility for debts depends on size of his/her investment in the firm. • Limited life span in the business. Potential conflict between partners. • lack of resources compared to corporation • shared decision-making and profits • unlimited liability

  9. Corporations • Form of business recognized by law as a separate legal entity with all the rights of an individual • Have to file for permission with federal or state government to create • Partially owned by stockholders (investors who buys ownership certificates in the firm) Examples: Ford, GM, ABC, NBC

  10. Corporations Advantages • easy to raise financial capital (can sell stocks to investors, can borrow money by issuing bonds that it will repay with interest), • limited liability for owners, • directors can hire professional managers to run the firm, • unlimited life, • easy to transfer ownership (stockholders can sell their stocks)

  11. Corporations Disadvantages: • double taxation of profits (corporation pays taxes on its profits and stockholders pay taxes on money made), • difficult and expensive to get a corporation charter, • owners/stock shareholders have little to no voice in how business is run, (Even with majority stock) • subject to more government regulation.

  12. Typical Corporation Stockholders Board of Directors (Chairperson) Secretary CEO Treasurer (President) Vice President Vice President Vice President Vice President Marketing Production R & D Personnel Dept. Supervisor Dept. Director Mgr Mgr Of Personnel

  13. Percentage of Employed Corporations 60% Sole Prop. & Part. 40% Percentage of Firms Percentage of Sales Corporations 20% Partnerships 7% Corporations 89% Sole Proprietorships 73% Partnerships 6% Sole Proprietorships 5%

  14. Define: In Chapter 3 Section 1 define the following terms:

  15. Limited Liability Company • LLC– limited liability • Not a corporation – pass through entity to person(s) who own it – no double taxation

  16. Franchises • Franchiser • Franchisee

  17. Non - Profit Organizations • Churches & Religious organizations • Charitable Organizations - UnitedWay – American Red Cross

  18. Non - Profit Organizations • Cooperatives • consumer/purchasing - wholesale clubs • producer/marketing - agriculture

  19. Non - Profit Organizations • Cooperatives • consumer/purchasing - wholesale clubs • producer/marketing - agriculture • service - credit unions, insurance, HMO, child care (fastest growing) • industrial/esops – more common in Europe

  20. Vertical Integration U.S. Steel Coke fields Coke fields Coke fields Coke fields Coke fields purchased by Carnegie purchased by Carnegie purchased by Carnegie purchased by Carnegie purchased by Carnegie Iron ore deposits Iron ore deposits Iron ore deposits Iron ore deposits purchased by Carnegie purchased by Carnegie purchased by Carnegie purchased by Carnegie Steel mills Steel mills Steel mills purchased by Carnegie purchased by Carnegie purchased by Carnegie Ships Ships purchased by Carnegie purchased by Carnegie Railroads purchased by Carnegie

  21. Vertical Integration GM General Motors Assembly Manufact- uring Refining Transportation Mining

  22. Chrysler GM General Motors Ford Horizontal Integration

  23. Economy of Scale • Disadvantages of Bigness • impersonal • waste of resources/pollution • development of monopolies • insecurity of workers • Conglomerates – next slide • Cost/benefit analysis - ahead

  24. Soft Drink Clothing Bakery Parent Company Gasoline Sporting Goods Fast Food Conglomerate

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