Business and Labor Chapter 22. Types of Businesses Section 1

Business and Labor

Chapter 22

Types of Businesses

Section 1

Types of Businesses

• The types of business organizations in the economy today:

1. Sole proprietorship (most common)

2. The partnership

3. Corporation

Proprietorships

• A business owned and operated by a sole, or single person.

• Examples: Beauty salons, cleaners, and pizza restaurants.

• Mowing or babysitting for someone else.

Advantages and Disadvantages

• Advantage: the proprietor has full pride in owning the business and receives all the profits.

• Disadvantage: The proprietor has unlimited liability, or complete legal responsibility for all debts and damages arising from doing business.

More Disadvantages

• Financial Capital—The money needed to run a business or enable it to grow larger.– Sole proprietors find it difficult to raise this.

• Difficult to attract qualified employees

Partnerships

• Partnerships= A business that two or more people own and operate.

• Articles of Partnership= A document that identifies how much money each partner will contribute and what role each partner will play in the business.– How will you share profits and losses.

Kinds of Partnerships

• General Partnerships– All partners are responsible for the

management and financial obligations of the business.

• Limited Partnerships– At least one partner is not active in the daily

running of the business, although he or she may have contributed funds to finance the operation.

Advantages

• Pride of owning a business

• Partnerships can raise money

• Each owner brings special talent.

• Larger size make for more efficient operations.

Disadvantages

• Legal structure is complex.

• Owners have unlimited liability.

Corporations

• Corporation= An organized business recognized by law that has many of the rights and responsibilities of an individual.

Structure of a Corporation

• Someone who wants to start a corporation must get a charter—a government document granting permission to organize.– Includes the name, purpose, address, ect.

• Charter specifies the amount of stock, or ownership shares of the corporation, that will be issued.– The people who buy this stock are called

Stockholders– Use this money to set up and run the

business.

Structure of a Corporation

• The stockholders elect a board of directors.

• The board hires a manager to run the corporation on a daily basis.

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Advantages

• Ease of raising financial capital

• Ease of raising capital to expand the corporation.

• Board of directors can hire professional managers to run the business.

• Ownership can be easily transferred.

Disadvantages

• Expensive and complex to set up• Business owners have very little say in the

management of the business.• Subject to more government regulation

– Release reports

• Subject to double taxation– Tax on profits– Then when those profits are distributed to the

stockholders, the stockholders have to pay taxes on those earnings.

The Largest Corporations

• Wal-Mart is the worlds largest corporation

• BP

• Exxon Mobile

• Shell

Other Business Organizations

• Nonprofit institutions– Churches and hospitals.

• Cooperative—a voluntary association of people formed to carry on an economic activity that benefits its members.

The American Labor Force

Section 2

Organized Labor

• Labor Unions= groups of workers who band together to have a better chance to obtain higher pay and better working conditions.– Only 14% of American workers belong to

unions.– Ex. United Auto Workers

Types of Unions

• Local Unions– Includes the members of a

union in a factory, company, or geographic area.

• National Unions– Individual craft or industrial

unions that represent locals on a nationwide level.

– AFL-CIO (13 million members)

Union Arrangements

• Union shop—a common agreement today which allows companies to hire anyone as long as they join the union shortly after they begin working.

• Right-to-work laws—prevent mandatory union membership required by the union shop.– This does not require a worker to join a union

to be hired or keep the job.

Union Agreements

• A union cannot be brought into a workplace unless a majority of the workers votes in favor of it.

• National Labor Relations Board (NLRB), makes sure that these union elections are carried out fairly and honestly.

Negotiations

• Collective Bargaining—Officials from the union and the company meet to discuss the workers new contract.– Focus on wages and benefits

Getting Outside Help

• If the parties cannot agree on terms for a new contract they can:– Try mediation—they bring in a third party

who tries to help them reach a compromise agreement.

– Try arbitration—A third party listens to both sides, then decides how to settle the disagreement.

• Both parties agree in advance to accept the arbitrator’s decision.

Labor Tools

• Works can all a strike—in which all workers in the union refuse to go to work.– The workers hope the business will have to

shut down without any employees, forcing the company to accept the union’s contract terms.

• Encourage a boycott—refuse to buy the business’s products.

Strikes

Management Tools• Lockout

– The company prevents workers from entering the building until they accept the contract.

– The business hopes the loss of income will convince workers to accept the company’s position.

Injunctions

• Management sometimes requests a court injunction—a legal order of a court preventing some activity– Used to prevent strikes– 1995 baseball strike

Seizure

• A temporary government takeover of operations to allow the government to negotiate with the union.

• Coal strike in 1946.

Public Employee Union

• A public employee union is a union for the local, state, or federal government.

• The American Federation of Government Employees (AFGE) is the largest representing 600,000 workers.

Businesses in Our Economy

Section 3

Roles of Business

• Many local businesses and corporations support charities and give money to foundations.

• Businesses act as consumers—they buy goods and services from other businesses.

• Businesses are Producers!

Responsibilities to Consumers

• Responsibility of selling products that are safe.

• Products should work as promised.

Responsibilities to Owners

• To protect stockholders, corporations are required to release important financial information regularly.

• This is called transparency!– Provide investors full disclosure before they

choose to invest, or continue to invest, in the company.

– ENRON!

Responsibilities to Employees

• Businesses are required to give their workers a safe workplace and to treat all workers fairly and without discrimination.– They can not treat employees differently on

the basis of race, religion, color, gender, age, or disability.

Responsibility to the Community

• Social Responsibility= The obligation to pursue goals that benefit society as well as themselves.– Gifts to charities