Download Chapter 8 PPT

Schnurbusch & Assoc., LLC
 Adjusters, Inc.
 Superior Heating and Cooling Co.
 Rhymes Corp.
 Beckmann Brothers
 Baco Itau, S.A.
 TimAir Ltd.
 AOL Time Warner

LLC - Limited Liability Company
 Inc. – Incorporated
 Corp. - Corporation
 Brothers – partnership
 S.A. – anonymous society
 Ltd. - Limited Liability
 Co. - Company
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
Read Part I aloud
Business Plan Cartoons
 Divide into Ants and Grasshoppers
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Grasshopper and Ant are considering
whether to become partners in the StarHops
business.
If you were Grasshopper, would you make
Ant a partner?
What share of the profits from the business
are you willing to give Ant?
If you were Ant, would you want to put your
savings into Grasshopper’s business?
What share of the profits would you want?
What type of agreement should Grasshopper
and Ant have?

Consider the following:
› GH has operated a business successfully for
several years and has kept all of the profits
earned from the business.
› GH could hire Ant as an employee and pay Ant
a salary higher than what she currently earns.
› GH could hire Ant at a somewhat lower salary
and offer Ant profit sharing. This means that
if the business is successful, Ant would
receive a bonus or additional payment based on
the level of success.
› GH could made Ant a partner if Ant agrees to
buy into the business with some of her savings.
But GH wouldn’t want to give Ant an equal
share in the business. Maybe he would offer
her a 30% partnership in the business.
› Ant already has a job and is successful. She
may not be willing to leave her rather secure
position to work for GH unless she has a
strong incentive to do so.
› Ant will only put her savings into the StarHops
business if she thinks that the return she will
receive is greater than what she currently
earns on the financial investments she has.
Read Part II
 Tell me some advantages and
disadvantages of Sole Proprietorship
 Tell me some advantages and
disadvantages of Partnerships
 Read Part III
 Let’s take a look at these business
organizations
 Please fill in Chapter 8 PPT Worksheet


Business Organization is an establishment
formed to carry on commercial enterprise
Sole proprietorships are
the most common form
of business organization
 Most sole
proprietorships are
small. All together, sole
proprietorships
generate only about 6
percent of all United
States sales.
 A sole proprietorship is
a business owned and
managed by a single
individual.

 Ease
of Start-Up
› With a small amount of paperwork and legal
expenses, just about anyone can start a sole
proprietorship.
 Relatively
Few Regulations
› A proprietorship is the least-regulated form of
business organization.
 Sole
Receiver of Profit
› After paying taxes, the owner of sole
proprietorship keeps all the profits

Full Control
› Owners of sole proprietorships can run their
businesses as they wish. There is a deep
psychological benefit to being one’s own
boss.

Easy to Discontinue
› Besides paying off legal obligations, such as
taxes and debt, no other legal obligations
need to be met to stop doing business.
The biggest disadvantage of sole
proprietorships is unlimited personal
liability. Liability is the legally bound
obligation to pay debts.
 Sole proprietorships have limited access
to resources, such as physical capital.
Human capital can also be limited,
because no one knows everything.

Sole proprietorships also lack
permanence. Whenever an owner closes
shop due to illness, retirement, or any
other reason, the business ceases to
exist.
 Sole proprietorships often have trouble
finding and keeping good employees.

› Generally cannot offer security and
advancement opportunities
› Offer little in the way of fringe benefits.
Fringe benefits are payments and compensation
to employees other than wages or salaries –
more prevalent with larger corporations
Examples of fringe benefits
 Paid vacation
 Sick leave
 Retirement pay
 Employer sponsored health insurance
 Employer sponsored life insurance
 On-site daycare
A business organization
owned by two or more
persons who agree on a
specific division of
responsibilities and
profits
 Divide responsibilities
to match their talents


General Partnership
› In a general partnership, partners share equally
in both responsibility and liability.

Limited Partnership
› In a limited partnership, only one partner is
required to be a general partner, or to have
unlimited personal liability for the firm.

Limited Liability Partnership
› A newer type of partnership is the limited
liability partnership. In this form, all partners
are limited partners, and have no personal
liability for debts that exceed the assets of
the general partnership.
1. Ease of Start-Up
 Articles of Partnership
2. Shared Decision Making &
Specialization
 Each partner brings different strengths and
skills
3. Larger Pool of Capital
 Each partner's assets, or money and other
valuables, improve the firm's ability to
borrow funds for operations or expansion.
4. Taxation
 Business itself does not have to pay taxes.

Unless the partnership is a limited liability
partnership, at least one partner has
unlimited liability.
› General partners (GPs)
 Partners are bound by each other’s actions.
 They do not enjoy absolute control.
› Partnerships also have the potential for conflict.
 Partners need to ensure that they agree about work
habits, goals, management styles, ethics, and general
business philosophies. Choose wisely!
› Limited Life

A corporation is a legal entity, or being,
owned by individual stockholders. It faces
limited liability for the firm’s debts and
its legal identity is separate from those of
its owners (shareholders).

Stocks, or shares, represent a stockholder’s
portion of ownership of a corporation.
› A privately owned corporation which issues
stock to a limited a number of people is known
as a closely held corporation. These owners
rarely trade their stock. Ex: Simplot
› A publicly held corporation, has many
shareholders that buy and sell their stock on
the open (financial) markets.
› Government owned corporation- Post Office
Individual investors do
not carry responsibility
for the corporation’s
actions.
 Shares of stock are
transferable, which
means that stockholders
can sell their stock to
others for money.


Corporations have potential for more growth
than other business forms.
› Corporations can raise money through:
 Sell bonds (debt)
 Issue stock/shares (equity)
› Corporations can hire the best available labor
to create and market the best services or
goods possible.

Corporations have long lives.
› Difficulty and Expense of Start-Up
 Corporate charters can be expensive and
time consuming to establish. A state
license, known as a certificate of
incorporation, must be obtained.
› Double Taxation
 Corporations must pay taxes on their
income. Owners also pay taxes on
dividends, or the portion of the corporate
profits paid to them.
› Loss of Control
 Managers and
boards of directors,
not owners, manage
corporations.
› More Regulation
 Corporations face
more regulations
than other kinds of
business
organizations
No double taxation- no
corporate tax
 No more than 100
shareholders
 S = smaller – like sole
propriertorships but
protected from liabilility

• More forms and regulations
• Separate and more difficult tax forms
• Corporate tax rates are ofen higher than
personal tax rates
• Double taxation - corporations pay taxes on
profits, and owners pay taxes on any dividends
that are paid to shareholders out of after-tax
profits
• Publicly traded stocks
• Large Businesses – EX: IBM, GE
To add new products – Honda sells lawn
mowers
To gain access to other markets – Disney/
Dreamworks
To diversify business-Beatrice Foods/K-2’s
To get larger (economies of scale)
To destroy a competitor
To reduce marginal cost of production by
owning portions of the value chain
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›
Albertsons and International Freightways
 “People
of the same trade seldom
meet together, even for merriment
and diversion, but the conversation
ends in a conspiracy against the
public, or in some contrivance to
raise prices.”
 Adam Smith, 1776
Combines directly competing firms producing
and/or selling similar products
 Examples: Texaco, Shell, Conoco

Combines two firms
involved in different
stages of producing a
good or service
 Example: car
manufacturer buys tire
company

Combines two or
more separately
owned businesses,
operating in
unrelated markets
 Example: General
Electric acquires
Universal Pictures
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Hale Business Systems, Mary Kay
Cosmetics, Fuller Brush, and W. R. Grace
Co.
› Hale, Mary, Fuller, Grace
Polygram Records, Warner Bros., and
Zesta Crackers - Poly, Warner Cracker
 3M, Goodyear – MMMGood
 ZippoManufacturing, AudiMotors,
Dafasco, Dakota Mining

› ZipAudiDoDa
FedEx, UPS – FedUP
 Fairwell Electronics, Honeywell Computers
– Fairwell Honeychild
 Grey Poupon, Docker Pants – PouponPants
 Knotts Berry Farm, National Organization
of Women – Knott NOW!!
 Victoria’s Secret, Smith & Wesson

› TittyTittyBangBang
Multinational corporations (MNCs) are large
corporations headquartered in one country
that have subsidiaries throughout the
world. They produce and sell their goods
and services throughout the world.
Advantages of MNCs
 Multinationals benefit consumers by
offering products and jobs worldwide.
They also spread new technologies and
production methods across the globe.
Disadvantages of MNCs
 Some people feel that MNCs unduly
influence culture and politics where they
operate. Critics of multinationals are
concerned about wages and working
conditions provided by MNCs in foreign
countries.

A business
franchise is a
semi-independent
business that
pays fees to a
parent company in
return for the
exclusive right to
sell a certain
product or
service in a given
area.
Advantages of a Franchise
• Management training & support
• Standardized quality
• National advertising programs
• Financial assistance
• Centralized buying power
Disadvantages of a
Franchise
• High franchising fees &
royalties
 Royalties are a
percentage of the
earnings paid to for a
franchise
• Strict operating
standards
• Purchasing restrictions
• Limited product line
A
business organization owned
and operated by a group of
individuals for their shared benefit.
• Consumer
• Service
• Producer
Nonprofit organizations are institutions that function like
business organizations but do not operate for profits.
They are usually in the business of benefiting society.
Nonprofit organizations are exempt from federal income
taxes.
Examples: NPR, WFP, UNICEF, Sierra Club, HRW, Green
Peace, Red Cross, LiveStrong, Girl Scouts, Goodwill, St.
Jude’s, United Way, NFL, NBA, MLB?????