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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

Chapter 8

Business Organizations

Types of organizations
Types of Organizations

  • Business Organization – establishment formed to carry on commercial enterprise

  • Three Types

    • Sole Proprietorship

    • Partnerships

    • Corporations

Sole proprietorships
Sole Proprietorships

  • A business owned and managed by a single individual

Advantages of sole proprietorships
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

Advantages of sole proprietorships1
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

Advantages of sole proprietorships2
Advantages of Sole Proprietorships

It’s all mine!

  • Sole Receiver of Profit

  • Full Control

  • Easy to Discontinue

Disadvantages of sole proprietorships
Disadvantages of Sole Proprietorships

  • Unlimited Personal Liability

  • Limited Access to Resources

  • Lack of Permanence

I’ve lost everything!


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

Three kinds of partnership
Three Kinds of Partnership

  • General Partnership – Equal share of responsibility and liability among partners

    • Usually doctors, lawyers, accountants

Three kinds of partnership1
Three Kinds of Partnership

  • Limited Partnership – one partner has unlimited personal liability, others contribute money

    • Could be any kind of business

Three kinds of partnership2
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

Advantages of partnerships
Advantages of Partnerships

  • Easy to Start

    • Articles of Partnership – legal agreement of how to share profits and losses

Advantages of partnerships1
Advantages of Partnerships

  • Easy to Start

    • Without articles of partnership, the business falls under the Uniform Partnership Act

Advantages of partnerships2
Advantages of Partnerships

  • Shared Decision Making and Specialization

  • Large Pool of Capital

  • Taxation – no special taxes on the business

Disadvantages of partnerships
Disadvantages of Partnerships

:[email protected]!


  • Unlimited Liability (except with an LLP)

  • Potential for Conflict

The Main Event

Sen. Arlen Specter vs.

Sen. Ted Kennedy

Corporations mergers multinationals
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


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

Two types of corporations
Two Types of Corporations

  • Closely-Held Corporations – majority of stock is passed down through the family

Two types of corporations1
Two Types of Corporations

  • Publicly Held Corporations – many shareholders buying stock on the open market

Advantages of incorporation
Advantages of Incorporation

  • Advantages to the investor:

    • Limited liability

    • Shares are transferable

Advantages of incorporation1
Advantages of Incorporation

  • Advantages to the corporation

    • Higher potential for growth

    • Long lasting

    • Nearly unlimited capital

      • Selling bonds

Disadvantages of incorporation
Disadvantages of Incorporation

  • Difficulty and Expense of Start-Up

  • Double Taxation

  • Loss of Control

  • High Regulations

Combining corporations mergers
Combining Corporations - Mergers

  • Horizontal Mergers – join two or more firms competing in the same market


Combining corporations mergers1
Combining Corporations - Mergers

  • Vertical Mergers – join two or more firms involved in different stages of producing the same good


Combining corporations conglomerates
Combining Corporations - Conglomerates

  • Firms that buy other companies that produce totally unrelated goods


  • 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

Business franchises
Business Franchises

  • Semi-independent business that pays fees to a parent company

Business franchises1
Business Franchises

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

Advantages of opening a franchise
Advantages of Opening a Franchise

  • Management Training

  • Standardized Quality

  • National Advertising Program

I’m the same everywhere!

Advantages of opening a franchise1
Advantages of Opening a Franchise

  • Financial Assistance

  • Centralized Buying Power – the parent company buys in bulk to save everyone money

Disadvantages of opening a franchise
Disadvantages of Opening a Franchise

  • High Franchising Fees – parent company gets a share of the profit called a royalty

  • Strict Operating Standards

Disadvantages of opening a franchise1
Disadvantages of Opening a Franchise

  • Purchasing Restrictions

  • Limited Product Line

Cooperative organizations
Cooperative Organizations

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

Three kinds of co op s
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

Three kinds of co op s1
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

Nonprofit organizations
Nonprofit Organizations

  • Do not work for profit, but rather to help people

  • Exempt from income taxes

Nonprofit organizations1
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)

Nonprofit organizations2
Nonprofit Organizations

  • Trade Associations – promote the interest of an industry

  • Labor Unions – organized group of workers that aim to improve conditions, hours, and wages