Business Organizations


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quick run down of different types of b.o.s

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Business Organizations

  1. 1. Business Organizations
  2. 2. Businesses may be organized in a variety of ways <ul><li>1) Sole Proprietorship </li></ul><ul><li>2) Partnership </li></ul><ul><li>3) Corporation </li></ul>
  3. 3. <ul><li>Each type of organization offers significant advantages and disadvantages </li></ul>
  4. 4. Sole Proprietorships <ul><li>The most common form of business organization in the United States </li></ul><ul><li>73% of all firms in U.S. are sole proprietorships </li></ul><ul><li>The most profitable of all business organizations </li></ul><ul><li>This is a business owned and run by one person </li></ul><ul><li>Smallest size of business organization </li></ul>
  5. 5. Advantages of Sole Proprietorships <ul><li>Easy to start up </li></ul><ul><li>Easy to manage </li></ul><ul><ul><li>One owner/manager = flexibility & quick decision making </li></ul></ul><ul><li>Single owner does not have to share profits with anyone else </li></ul>
  6. 6. Advantages of Sole Proprietorships <ul><li>Business is not recognized as a separate legal entity; therefore, owner does not have to pay separate business income tax </li></ul><ul><li>Psychological satisfaction : you have become successful using your own skills/creativity & you are your own boss </li></ul><ul><li>Ease of getting out of business : all you have to do is close your shop and pay any outstanding bills </li></ul>
  7. 7. Disadvantages of Sole Proprietorships <ul><li>Unlimited liability for the owner : owner is personally responsible for all of the business's debts and losses </li></ul><ul><li>Difficulty in raising financial capital : businesses need a lot of money to start up individuals often have trouble raising that kind of money, banks are hesitant to give loans to new/small businesses </li></ul><ul><li>Limited size & efficiency : because of limited capital, there may not be enough personnel or stock inventory to operate the business efficiently </li></ul>
  8. 8. Disadvantages of Sole Proprietorships <ul><li>Proprietor often has limited managerial experience : lack of “business sense” </li></ul><ul><li>Small, non-established businesses have difficulty attracting qualified employees </li></ul><ul><li>Limited Life : The firm legally ceases to exist when the owner dies, quits, or sells the business. </li></ul>
  9. 9. Partnerships <ul><li>Types of partnerships </li></ul><ul><ul><li>General Partnerships: all partners are responsible for the management and financial obligation of the business (most common form of partnership) </li></ul></ul><ul><ul><li>Limited Partnerships : at least one partner is not active in the daily running of the business </li></ul></ul>
  10. 10. Forming a Partnership <ul><li>Formal legal papers (articles of partnership) need to be drawn up </li></ul><ul><li>These papers aren’t always required, but are drawn up to agree upon profit sharing and management decisions. </li></ul><ul><li>Partnerships make up 7% of all firms in U.S. </li></ul>
  11. 11. Advantages of Partnerships <ul><li>Easy to form : </li></ul><ul><li>Ease of management : each partner brings their own unique skills to the organization </li></ul><ul><li>No special taxes on partnerships : partners withdraw profits from the firm and pay individual income taxes. </li></ul>
  12. 12. Advantages of Partnerships <ul><li>Partnerships can usually attract financial capital more easily than sole proprietorships. </li></ul><ul><li>Larger size of partnerships makes them more efficient </li></ul><ul><li>Partnerships have an easier time attracting talented, qualified employees </li></ul>
  13. 13. Disadvantages of Partnerships <ul><li>In a general partnership, each partner is responsible for the acts of all other partners … one person messes up, everyone suffers </li></ul><ul><li>The business has a limited life </li></ul><ul><li>Potential for conflict between partners </li></ul>
  14. 15. Corporations <ul><li>Corporations account for 1/5 of all firms in the U.S. and 90% of all sales </li></ul><ul><li>A corporation is a form of business organization recognized by law as a separate legal entity having all the rights of an individual </li></ul>
  15. 16. Forming a Corporation <ul><li>People must ask the government for permission to incorporate </li></ul><ul><li>This is done through a corporate charter which is a government document giving individuals the right to incorporate </li></ul>
  16. 17. Corporate Formation…cont’ <ul><li>A corporate charter specifies the number of shares of stock , or ownership certificates in the firm </li></ul><ul><li>These shares are sold to investors who are called stockholders or shareholders </li></ul><ul><li>If the company is successful, it will issue a dividend a check representing a portion of corporate earnings to each stockholder </li></ul>
  17. 19. Different types of stock <ul><li>Common Stock: basic ownership of a corporation. 1 share of stock = 1 vote for corporate board of directors </li></ul><ul><li>Preferred stock: Non-voting shares, these stockholders may not vote on the Board of directors, but they receive their dividends first </li></ul>
  18. 21. Advantages of a corporation <ul><li>Ease of raising financial capital : if the corporation needs money, they sell stocks, or bonds : a written promise to repay the debt at a later date </li></ul><ul><li>Professional Managers run the firm : Shareholders can sit back and earn dividends, while someone they hired runs the business </li></ul>
  19. 22. Corporate advantages continued <ul><li>Limited Liability : If a corporation goes out of business, runs afoul of the law, etc. the shareholders lose the money they’ve invested, but are not responsible for any debts incurred by the corporation. </li></ul><ul><li>Unlimited Life : the corporation is a legal entity, so the name of the company stays the same, and they continue to do business despite changes in ownership </li></ul>
  20. 23. Corporate Disadvantages <ul><li>It is expensive and difficult to get a corporate charter (except in Delaware) corporate charters cost thousands of dollars </li></ul><ul><li>Shareholders have little say in how the business is run : They turn the running of the company over to the people they’ve hired and the board of directors </li></ul>
  21. 24. Corporate disadvantages…continued <ul><li>Double Taxation : Stockholder’s dividends are taxed twice; once as corporate profit, then again as personal income. </li></ul><ul><li>More government regulation : Corporations must register with the state they are chartered in. In order to sell their stock, they must register with the S.E.C. (securities and exchange commission), provide financial info. To the federal government, seek federal approval before taking over another business, etc. </li></ul>
  22. 25. Are corporations people? <ul><li>What rights do they have? </li></ul>
  23. 26. The 14 th Amendment <ul><li>Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws. </li></ul>
  24. 27. The 4 th Amendment <ul><li>The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized. </li></ul>
  25. 28. The 1 st Amendment <ul><li>Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or of the people peaceably to assemble, and to petition the Government for a redress of grievances. </li></ul>
  26. 29. <ul><li>Ohio EPA regulated the factory egg farms of Buckeye Egg. This corporation denied a regulatory body's access to their facility based on the 4th Amendment (protection against illegal search and seizure.) No more surprise inspections; now the EPA has to make an appointment. </li></ul><ul><li>In 1998 Omnipoint (which is now T-Mobile) was denied a permit for a cell phone tower in Wellfleet, MA. Omnipoint sued for the permit plus damages and attorney's fees under the 14th Amendment (equal protection). </li></ul><ul><li>In 2002 Synagro Corporation, a sludge hauling company, sued Porter Township, PA over laws aimed at stopping sewage dumping in their town. Synagro claimed the 14th Amendment protected them from this kind of discrimination. </li></ul>
  27. 30. <ul><li>After Mayfield Heights, Ohio banned gas companies from drilling in its community, the Ohio legislature passed legislation to take regulation of gas wells out of the hands of municipalities and turn it over to state regulators. The bill was passed after oil and gas industry lobbyists doubled their contributions to the sponsors of the bill. </li></ul><ul><li>When the Massachusetts State Legislature passed a ban on corporate contributions to political advertising, a consortium of businesses sued, based on their 1st Amendment right to free speech, and the court struck down the legislation. </li></ul><ul><li>In January, 2005, the EPA agreed to permit factory farms to pollute the air without restrictions, counter to the provisions of the Clean Air Act. </li></ul>
  28. 31. <ul><li>Corporations employ millions of people </li></ul><ul><li>Corporations contribute millions of dollars in tax money to state and U.S. governments </li></ul><ul><li>Corporations drive the economy </li></ul><ul><li>Corporations are legally obligated to make as much money as possible for their shareholders </li></ul>