Chapter 8 Business Organizations Firms What is

Chapter 8 Business Organizations/ Firms

What is an Entrepreneur? A person who organizes and operates a business or businesses, taking on greater than normal financial risks to do so In your opinion, what are three most important traits that determine the success of an entrepreneur? Why do you feel these are the most important? Do you have what it takes to be a successful entrepreneur? List the traits you feel you possess and those you feel you may lack.

Business Firms

Names of Business How can we categorize them? Schnurbusch & Assoc. , LLC Adjusters, Inc. Superior Heating and Cooling Co. Rhymes Corp. Beckmann Brothers Baco Itau, S. A. Tim. Air Ltd. AOL Time Warner

Trying to Limited Liability LLC - Limited Liability Company Inc. – Incorporated Corp. - Corporation Brothers – partnership S. A. – anonymous society Ltd. - Limited Liability Co. - Company

Every business begins with a problem Have you ever thought of a great idea for a new product/service? o Do you have any recurring issues (“pain points”) that you wish someone would provide a solution to?

Definition of a Business Firm An organization that uses resources to produce goods and services sold to consumers, other firms, or the government.

Business Organization is an establishment formed to carry on commercial enterprise

Sole Proprietorships Sole proprietorships are the most common form of business organization Most sole proprietorships are small. All together, sole proprietorships generate only about 6 percent of all United States sales. A sole proprietorship is a business owned and managed by a single individual.

With a partner Talk it over what do you think some advantages and disadvantages are of a Sole proprietorships are? Be ready to share!!!!!

Advantages of Sole Proprietorships Ease of Start-Up With a small amount of paperwork and legal expenses, just about anyone can start a sole proprietorship. Relatively Few Regulations A proprietorship is the least-regulated form of business organization. Sole Receiver of Profit After paying taxes, the owner of sole proprietorship keeps all the profits

Advantages of Sole Proprietorships Full Control Owners of sole proprietorships can run their businesses as they wish. There is a deep psychological benefit to being one’s own boss. Easy to Discontinue Besides paying off legal obligations, such as taxes and debt, no other legal obligations need to be met to stop doing business.

Disadvantages of Sole Proprietorships The biggest disadvantage of sole proprietorships is unlimited personal liability. Liability is the legally bound liability obligation to pay debts. Sole proprietorships have limited access to resources, such as physical capital. resources Human capital can also be limited, because no one knows everything.

Disadvantages of Sole Proprietorships Sole proprietorships also lack permanence Whenever an owner closes shop due to illness, retirement, or any other reason, the business ceases to exist. Sole proprietorships often have trouble finding and keeping good employees. Generally cannot offer security and advancement opportunities Offer little in the way of fringe benefits

Fringe Benefits Fringe benefits are payments and compensation to employees other than wages or salaries – more prevalent with larger corporations Examples of fringe benefits Paid vacation Sick leave Retirement pay Employer sponsored health insurance Employer sponsored life insurance On-site daycare

Partnerships A business organization owned by two or more persons who agree on a specific division of responsibilities and profits o Divide responsibilities to match their talents o

Types of Partnerships General Partnership In a general partnership, partners share equally in both responsibility and liability. Limited Partnership In a limited partnership, only one partner is required to be a general partner, or to have unlimited personal liability for the firm. Limited Liability Partnership A newer type of partnership is the limited liability partnership. In this form, all partners are limited partners, and have no personal liability for debts that exceed the assets of the general partnership.

With a partner Talk it over what do you think some advantages and disadvantages are of a Partnerships are? Be ready to share!!!!!

Advantages of Partnerships 1. Ease of Start-Up Articles of Partnership 2. Shared Decision Making & Specialization Each partner brings different strengths and skills 3. Larger Pool of Capital Each partner's assets, or money and other valuables, improve the firm's ability to borrow funds for operations or expansion. 4. Taxation Business itself does not have to pay taxes.

Disadvantages of Partnerships Unless the partnership is a limited liability partnership, at least one partner has unlimited liability General partners (GPs) Partners are bound by each other’s actions. They do not enjoy absolute control. Partnerships also have the potential for conflict. Partners need to ensure that they agree about work habits, goals, management styles, ethics, and general business philosophies. Choose wisely! Limited Life

Corporations A corporation is a legal entity, or being, owned by individual stockholders. It faces limited liability for the firm’s debts and its legal identity is separate from those of its owners (shareholders).

Stocks, or shares, represent a stockholder’s Stocks portion of ownership of a corporation. A privately owned corporation which issues stock to a limited a number of people is known as a closely held corporation. These owners rarely trade their corporation stock. Ex: Simplot A publicly held corporation, has many shareholders corporation that buy and sell their stock on the open (financial) markets. Government owned corporation- Post Office

With a partner Talk it over what do you think some advantages and disadvantages are of a Corporations are? Be ready to share!!!!!

Advantages to Corporations Individual investors do not carry responsibility for the corporation’s actions. Shares of stock are transferable, which means that stockholders can sell their stock to others for money.

Advantages to Corporations have potential for more growth than other business forms Corporations can raise money through: Sell bonds (debt) Issue stock/shares (equity) Corporations can hire the best available labor to create and market the best services or goods possible. Corporations have long lives

Disadvantages of Corporations › Difficulty and Expense of Start. Up Corporate charters can be expensive and time consuming to establish. A state license, known as a certificate of incorporation, must be obtained. › Double Taxation Corporations must pay taxes on their income. Owners also pay taxes on dividends, or the portion of the corporate profits paid to them.

Disadvantages of Corporations Loss of Control Managers and boards of directors, not owners, manage corporations. More Regulation Corporations face more regulations than other kinds of business organizations

S- Corporations No double taxation- no corporate tax No more than 100 shareholders S = smaller – like sole proprietorships but protected from liability

C - Corporation • More forms and regulations • Separate and more difficult tax forms • Corporate tax rates are ofen higher than personal tax rates • Double taxation - corporations pay taxes on profits, and owners pay taxes on any dividends that are paid to shareholders out of after-tax profits • Publicly traded stocks • Large Businesses – EX: IBM, GE

Stockholders CORPORATE STRUCTURE Board of Directors Secretary President VP Dept Head Treasurer VP Dept Head VP Dept Head

Sweet Opportunities Assignment in Partners 2. Read through the client list as a group and discuss which form of business organization best suits the client’s particular situation. 3. Make a recommendation for each client. 4. Include the following in your recommendation: 1. Which type of business the client should pursue & 3 reasons for that recommendation. 2. At least one possible disadvantage to the form of business you recommended & ideas for mitigating this disadvantage. 1. Get

Reasons for Mergers To add new products – Honda sells lawn mowers To gain access to other markets – Disney/ Dreamworks To diversify business-Beatrice Foods/K-2’s To get larger (economies of scale) To destroy a competitor To reduce marginal cost of production by owning portions of the value chain › Albertsons and International Freightways

Horizontal Merger Combines directly competing firms producing and/or selling similar products Examples: Texaco, Shell, Conoco

Vertical Merger Combines two firms involved in different stages of producing a good or service Example: car manufacturer buys tire company

Conglomerate Merger Combines two or more separately owned businesses, operating in unrelated markets Example: General Electric acquires Universal Pictures

Multinationals Multinational corporations (MNCs) are large corporations headquartered in one country that have subsidiaries throughout the world. They produce and sell their goods and services throughout the world.

Advantages of MNCs Multinationals benefit consumers by offering products and jobs worldwide. They also spread new technologies and production methods across the globe. Disadvantages of MNCs Some people feel that MNCs unduly influence culture and politics where they operate. Critics of multinationals are concerned about wages and working conditions provided by MNCs in foreign countries.

Business Franchise A business franchise is a semi-independent business that pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area.

Advantages of a Franchise • Management training & support • • Standardized quality National advertising programs Financial assistance Centralized buying power

Disadvantages of a Franchise • High franchising fees & royalties Royalties are a percentage of the earnings paid to for a franchise • Strict operating standards • Purchasing restrictions • Limited product line

Cooperatives A business organization owned and operated by a group of individuals for their shared benefit. • Consumer • Service • Producer

Nonprofit Organizations Nonprofit organizations are institutions that function like business organizations but do not operate for profits. They are usually in the business of benefiting society. Nonprofit organizations are exempt from federal income taxes. Examples: NPR, WFP, UNICEF, Sierra Club, HRW, Green Peace, Red Cross, Live. Strong, Girl Scouts, Goodwill, St. Jude’s, United Way, NFL, NBA, MLB? ? ?