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Business Organization

CHAPTER 5. Business Organization. 5-1 Business in the U.S. Economy 5-2 Forms of Business Ownership 5-3 Organizational Structure for Businesses. 5-1. Business in the U.S. Economy. Goals Describe the changing status of U.S. employment Discuss the role of business in the U.S. economy

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Business Organization

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  1. CHAPTER 5 Business Organization 5-1 Business in the U.S. Economy 5-2 Forms of Business Ownership 5-3 Organizational Structure for Businesses 5

  2. 5-1 Business in the U.S. Economy Goals Describe the changing status of U.S. employment Discuss the role of business in the U.S. economy Describe the three major types of businesses 5

  3. Key Terms • contingent worker • producer • intermediary • service business 5

  4. 38. THE CHANGING U.S. JOB MARKET • Employment data • Pressures on employees 5

  5. Checkpoint >> List several groups that will increase as a percentage of the total U.S. workforce in the next decade. Answer • Younger workers (16–24 years of age) • Asian-, Hispanic-, African-American groups • Women 5

  6. 39. BUSINESS AND THE ECONOMY • Size of businesses • Roles of business • Impact on a community 5

  7. Percent of Businesses by Employee Size Source: U.S. Census Bureau 5

  8. 39. (continued) BUSINESS ACTIVITIES • Generating ideas • Raising capital • Employing and training personnel • Buying goods and services • Marketing goods and services • Maintaining business records 5

  9. Checkpoint>> What are the basic activities completed by all businesses? Answer • are generating ideas • raising capital • employing and training personnel • buying goods and services • marketing goods and services • maintaining business records 5

  10. 40. TYPES OF BUSINESSES • Producers • Intermediaries • Service businesses 5

  11. Checkpoint>> How does a manufacturer differ from an extractor? Answer • An extractor takes natural resources, such as oil or timber, for direct consumption or for use in developing other products. • A manufacturer takes resources supplied by others and converts them into useable products. 5

  12. 5-2 Forms of Business Ownership Goals Understand the three major forms of business ownership Determine when each form of business ownership is most appropriate Recognize other specialized business ownership forms 5

  13. Key Terms • proprietorship • partnership • corporation • partnership agreement • articles of incorporation • franchise 5

  14. 41. BUSINESS OWNERSHIP • Proprietorship~ Business owned and run by just one person (Unlimited Liability) • Partnership~ Business owned and controlled by two or more people (Unlimited Liability) • Corporation~ Separate legal entity formed by documents filed with a state. Owned by one or more shareholders and managed by a board of directors (Limited Liability) 5

  15. Forms of Ownership Source: Internal Revenue Service 5

  16. Checkpoint>> What are the differences between the three main forms of business ownership? Answer • Business forms differ in the ways in which decision-making and investments are made and to whom liabilities are distributed. 5

  17. CHOOSING A FORM OF BUSINESS OWNERSHIP • Choosing a proprietorship~ • Most businesses begin this way and remain this way • Total control is with the owner • Easy to begin- only requires gov’t licenses and/or permits • Tax advantage/disadvantage • ALL income is part of business and expenses can often be written off to reduce income • ALL debts are owner’s responsibility (Unlimited liability) 5

  18. 42. CHOOSING A FORM OF BUSINESS OWNERSHIP (continued) • Choosing a partnership~ • Can sometimes be formed by verbal agreement • BUT most of the time, a written partnership agreement is prepared • Details the rules and procedures that guide ownership and operations • Lists clearly the business name, investments, and partner contributions • Shows how profits and losses will be divided among partners • Defines authority and responsibilities granted to each partner • States how the partnership can be dissolved 5

  19. Partnership (continued • Advantages • More people contribute to the investment in the business • More expertise • Disadvantages • Each partner is responsible for the decisions of all other partners • No protection of personal assets of each partner • Unlimited Liability 5

  20. CHOOSING A FORM OF BUSINESS OWNERSHIP (42. continued) • Choosing a corporation~ • Not just an option for large businesses • Increasing in popularity of small businesses as well • Subject to many more laws and are more difficult to form 5

  21. Corporations (continued) • Treated as an “individual” by gov’t • Must obey laws of the state and must file ‘articles of incorporation’ • Written legal document that defines ownership and operating procedures (corporate bylaws) and conditions • A Board of Directors must be appointed • Must issue shares of stock to investors 5

  22. Corporation (continued) • Advantages~ • Liability is limited to the amount of money invested • Amount of debt of the business does not matter • People can invest in the business and receive part of the profits without having to take part in the day-to-day operations • Can be easily expanded 5

  23. Corporation (continued) • Disadvantages~ • Decision-making is shared among managers, board of directors, and shareholders • Many records are required and more laws regulate corporations than the other two forms of business ownership • Business pays corporate taxes to the government AND investors also pay taxes on individual earnings from the business 5

  24. Checkpoint>> Which form of business ownership is the most complex and difficult to form? Answer • The corporation is more complex to begin than other business forms. • Forming a corporation requires much more bureaucracy, is more subject to government regulations, requires the organization of a board, and must have clearly defined bylaws. 5

  25. 43. OTHER FORMS OF OWNERSHIP • Specialized partnerships and corporations • Limited liability partnership http://legal-dictionary.thefreedictionary.com/Limited+Liability+Partnership • Identifies some investors who cannot lose more than they have invested, BUT they are not permitted to participate in the day-to-day management of the business • Joint Venture • Unique business organized by 2 or more businesses to operate for a limited time for a specific project 5

  26. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Specialized partnerships and corporations (continued) • S-Corporation http://www.irs.gov/businesses/small/article/0,,id=98263,00.html • For small businesses • Offers the limited liability of a corporation • All income is passed through to the owners based on their investment and is taxed on individual earnings • Limited Liability Company (LLC) http://www.irs.gov/businesses/small/article/0,,id=98277,00.html • Newer form of ownership • Combines partnership with corporation • Provides liability protection for owners • Simpler than a corporation • No articles or bylaws are needed 5

  27. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Specialized partnerships and corporations (continued) • Nonprofit corporation • Joined to do something that benefits the public • Education, health care, charity, the arts… • Free from corporate income taxes • Receive grants and donations from individuals and businesses • Must meet government requirements 5

  28. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Cooperatives • Cooperative~ • Owned by members and serves their needs • Two types: • Consumers Cooperatives • Business (Producer’s) Cooperatives • http://www.youngzine.com/article/2012-international-year-cooperatives 5

  29. 43. OTHER FORMS OF BUSINESS OWNERSHIP (continued) • Franchises http://www.redhotfranchises.com/ • Written contract granting permission to operate a business to sell products and services in a set way. • Franchiser- company that owns the product or service and grants the right to another business • Franchisee- company that purchases the rights to run the business • Franchisee maintains day-to-day operations and receives profits • Pays fees and percentage of profits to franchiser 5

  30. Checkpoint>> What are the other specialized forms of business ownership? Answer • limited liability partnership • joint venture • S-corporation • limited liability companies (LLC) • nonprofit corporations. • franchise • cooperative 5

  31. Mini-Project • Find and list five franchises that interest you using www.redhotfranchise.com5 pts • For each franchise, answer the following questions: 25 pts • How much liquid capital is needed to purchase the franchise? • Is training from the parent company provided? • Provide a brief description of the franchise (what the business does, their goals, mission, competitive edge, and other activities, etc.). 30 pts total 5

  32. 5-3 Organizational Structure for Businesses Goals Understand important principles in designing an effective organization Compare alternative organizational structures for businesses 5

  33. Key Terms (continued) • Organization chart~ • Diagram that shows the structure of an organization, classifications of work/jobs, and relationships among those classifications 5

  34. Business Organization Chart 5

  35. 45. TYPES OF ORGANIZATIONAL STRUCTURES • Functional organization structure • Work is arranged within main business functions such as production, operations, marketing, and human resources • All people with related jobs work together • Advantages and Drawbacks • Matrix organizational structure • Work is structured around specific projects, products, or customer groups • People with varied backgrounds are assigned together because their expertise is required for the project or to serve a customer • Groups may be temporary or long-term 5

  36. 44. DESIGNING AN EFFECTIVE BUSINESS ORGANIZATION • Setting direction • Mission Statement, Goals, Policies, and Procedures • Principles of effective organization • Responsibility, Authority, Accountability, Unity of Command, and Span of Control 5

  37. Setting Direction (Obj. 44 continued) • Mission statement~ • Short, specific written statement of the reason a business exists and what it wants to achieve. • Goal~ • A precise statement of results the business expects to achieve • Used to define what needs to be accomplished • Policies~ • Guidelines used in making consistent decisions • Procedures~ • Descriptions of the way work is to be done 5

  38. Principles of Effective Organization(Obj. 44 continued) • Responsibility(obligation to complete specific work), Authority(right to make decisions about how responsibilities should be accomplished), and Accountability(taking responsibility for the results achieved) • Unity of command (clear reporting relationship for all staff of a business~ ‘chain of command) • Span of control (the number of employees who are assigned to a particular work task and manager) 5

  39. Checkpoint>> What is the difference between a mission statement and a goal? Answer • A mission statement states the purpose of existence for a business and what it hopes to achieve. • A goal is a more specific statement of what a business expects to achieve and may be used to measure a business’ success. 5

  40. Checkpoint>> What problems can result from the use of a functional organizational structure? Answer • Employees in a functional organizational structure may tend to loose sight of overall corporate goals. • Workers tend to be limited to specific duties and may not see their relationship to the organization as a whole. • This can result in lack of interest and motivation over time. 5

  41. Chapter 5-3 and Review • Page 118 • 1-3 and • Choose 4 or 5 • Pages 120-123 • 1-23 and • Choose 1 from 24-31 5

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