Business Organizations

Liability Finance Options (raising $$)

Tax Implications

Life of the Business

Local/Regional

Examples(s)

Sole Proprietorship

Partnership

Corporation

Franchises

Use the packet and pgs. 212-221 to complete the following chart (either on this page or in your notes):

Sole Proprietorships

Keep all profitsEasy to manage“Be your own boss”Easy to start / endNo special taxes

Advantages Disadvantages• Difficult to raise

capital• Unlimited Liability• Inefficient• Don’t attract the best

employees• “Be your own boss”• Limited Life

PartnershipsLimited Liability (L.P.)Shared lossesEasier to manageNo special taxesEasier to raise capitalMore efficient through

specialization

Advantages Disadvantages• Unlimited Liability

(G.P.)• Shared profits• Potential for owner

disagreement• More difficult to start• Limited Life

What is a corporation?A corporation is a legal entity

separate from the owner or owners of the business

Corporations can be publicly or privately owned

Corporations can be very small or very large

Can just anyone start a corporation?Yes, it’s pretty easy!

Why might you want to incorporate?

CorporationsLimited LiabilityEasy to raise capitalShare lossesEconomies of scaleAttract best workersUnlimited LifeEasy to Transfer

OwnershipCan issue bonds

Advantages Disadvantages• Share profits• Difficult to start• Little say in day-to-

day operations• Corporate income tax

– Double Taxation• Government

regulation

Corporate Questions…1. Who owns a corporation?2. Who is responsible for the long-run direction of a corporation?3. Who is responsible for day-to-day operations of a corporation?

Corporate Structure

Private Corporations

Public Corporations

IPO = Initial Public OfferingIPO = Initial Public Offering Corporation: Corporation: WWEWWE Date Went Public: Date Went Public:   Oct 19, 1999   Oct 19, 1999 Shares Offered (mil.): Shares Offered (mil.):   10.00  10.00 IPO Price:IPO Price: $17.00 per share $17.00 per share Offering Amount: Offering Amount:    

$170,000,000$170,000,000 Sold out right awaySold out right away

Reasons?Reasons?Raise money for expansionRaise money for expansionPay down debtsPay down debtsCash in!Cash in!

Why “Go Public?”

FranchisesFranchisee (Investor)Built in infrastructureEconomies of scaleAttract best workersAttachment to a brandFixed commitmentFranchisor (Brand)Grow business with:

Less riskLess investmentLess liability

Advantages DisadvantagesFranchisee (Investor)•Large up-front cost•Share profits•Sacrifice autonomy•Fixed commitmentFranchisor (Brand)•Less control•Limited profits

Hybrid Organizations

Limited Liability Corporation or Limited Liability Company

LLC LLP• Limited Liability

Partnership

Advantages and disadvantages vary, depending on the law of the state in which and LLP or LLC operates.

Homework!!!Read Ch. 8, Section 2 and complete 8-1 and 8-2 Quizzes.

Business ExpansionMergersConglomeratesMultinationals

MergersHorizontal Merger

Firms in the same industryVertical Merger

Firms in the same supply chainConglomerate Merger

Firms in many different markets under one company umbrella

Horizontal Merger

How does the government decide if it will allow a merger?

Does it reduce competition in a way that will hurt consumers?

Announced, March 2011

Abandoned, Dec. 2011

Horizontal Merger

Horizontal Merger

Banking Mergers: 2007-2008

Vertical Merger

Who is the King of the Vertical Merger in America?

ConglomeratesCompanies that operate four or more distinct

businesses, none of which constitutes more than 50% of their total revenue.

Translation: Companies that do lots of different “stuff”

Multi-NationalsCompanies that operate in more than one

nation.

CooperativesConsumer CooperativesService CooperativesProducer Cooperatives

Consumer Cooperatives

Well, sort of…

Service Cooperatives

Producer Cooperatives

What do you notice about these products?

Non-Profit OrganizationsA Non-Profit Organization (NPO) has no

owners who receive profits if the revenues of the business exceed its costs.

NPOs are legally constituted and their goals typically center on activities of public or private interest without any commercial or monetary profit purposes.

NPOs are active in a wide range of areas, including the public service, charity, philanthropy, education, and religion.

Non-Profit Organizations

Does anyone make money working for a non-profit?

Labor UnionsGroups of people who work in the same industry (or for the same company) who come together to achieve some common goal(s).

What are the 3 goals?

Better Pay

Better Working Conditions

Job Security

Labor Unions

Are labor unions good or bad for the economy?

Professional AssociationsGroups of people who work in the same profession (usually “white collar” jobs) that come together to promote the public perception of their profession

Professional AssociationsWhy might someone join a professional association?

Business AssociationsBusiness Association – a group of unrelated businesses that comes together to help its members market their products.

The GovernmentProtectorRegulatorConsumerProducerProvider