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Ch. 7: Business Organizations and
Ch.8: Labor and Unions
Section 7.1: Sole Proprietorships
 A sole proprietorship is a business owned and
controlled by one person
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It’s the oldest, simplest, and most common type of
business organization
Examples: Plumbers, carpenters, and hairstylists
are sole proprietors
 Advantages of Sole Proprietorships
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Ease of start-up
Full control
Exclusive rights to profits
Section 7.1: Sole Proprietorships
 Advantages of Sole Proprietorships continued
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Easy Start-up
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Sole proprietorships require fairly small amounts of
financial capital and involve few legal considerations
making them easy to form
 Some legal and gov’t restrictions do affect sole
proprietorships
 They must follow zoning laws that specify the areas
where various types of businesses can be placed
 They may also need to obtain a license from the state,
county, or city before they can operate
Section 7.1: Sole Proprietorships
 Advantages of Sole Proprietorships continued
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Control
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A sole proprietor can act quickly to correct problems or
take advantage of opportunities
This control gives sole proprietors a high degree of
personal satisfaction
Profit
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The owner (sole proprietor) keeps all the profits
Possibility of wealth is at the heart of the free enterprise
system
Section 7.1: Sole Proprietorships
 Disadvantages of Sole Proprietorships
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Unlimited liability
Sole responsibility
Limited growth potential
Lack of longevity
Section 7.1: Sole Proprietorships
 Disadvantages of Sole Proprietorships continued
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Unlimited liability
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The sole proprietor is personally responsible for all the
business debt
 Meaning if a sole proprietor's business is in debt, his
personal wealth will have to be used to repay debt if he
can’t the business may have to be sold
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Sole responsibility
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The owner is responsible for all aspects of running the
business
 These demands on the owner’s time and energy may
create frustration and reduce his sense of satisfaction and
accomplishment
Section 7.1: Sole Proprietorships
 Disadvantages of Sole Proprietorships continued
 Limited Growth Potential

To start a business, often the owner will use personal
savings or burrow money from a bank
 To guarantee repayment, the bank can require the owner
put up collateral (anything of value that a borrower agrees
to give up if he can’t repay a loan)
 Because most owners have limited collateral, sole
proprietorships often have limited ability to grow a business
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Lack of longevity
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Longevity is the length of time a business operates (a
firm’s length of life)
 Because a sole proprietorship depends on one person, the
risk of failure is very great
Section 7.2: Partnerships
 A business owned and controlled by two or more people is
a partnership
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Often found in free enterprise because of they require
relatively little financial capital to start and operate
Examples: Doctors, lawyers, and accountants may form
partnerships
 Limited partnership
 Partners join as investors who provide financial capital in
exchange for a share of the profits, but do not actively make
business decisions
 Advantages of Partnerships
 Ease of start-up
 Specialization
 Shared decision making
 Shared business loans
Section 7.2: Partnerships
 Advantages of Partnerships continued
 Easy start-up
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Few gov’t regulations apply to partnerships and costs
tend to be low
Partnerships begin when 2 or more people agree to
operate a business together
 A partnership contract outlines the distribution of profits and
losses among the partners; it also includes the
responsibilities for each partnership and how a partner can
be added or dropped or how to dissolve the partnership
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Specialization
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Specific business duties can be assigned to different
partners
 Partners are able to specialize in areas of the business their
skills and talents are best at
Section 7.2: Partnerships
 Advantages of Partnerships continued
 Shared Decision Making
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Partners can minimize mistakes by consulting with each
other on business matters
 This decision-making process allows partners to compare
points of view, rather than relying on one person for ideas
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Shared business losses
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The sharing of losses may enable a partnership to
survive a situation that would cause a sole proprietorship
to fail
Partnerships are better able than sole proprietorships to
obtain needed financial capital as banks are more willing
to loan money a group of people instead of an individual
Section 7.2: Partnerships
 Disadvantages of Partnerships
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Unlimited liability
Potential for conflict
Lack of longevity
Section 7.2: Partnerships
 Disadvantages of Partnerships continued
 Unlimited liability
 Each general partner has a role in the business and is
responsible for debts incurred by the business
 Potential for conflict
 Partners may have personality conflicts and different
management styles
 Partners who have opposing views may be unable to
compromise, which can lower employee morale, delay
business decisions, and decrease efficiency
 Lack of longevity
 The life of the business is dependent on the willingness and
ability of the partners to continue working together
 Illness, death, partner conflict, or other issues can end the
partnership
Section 7.3: Corporations
 Corporations are legally distinct from their owners
and treated as if they were individuals
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Meaning corporations can own property, hire
workers, make contracts, pay taxes, sue and be
sued, and make and sell products
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Examples: insurance companies, department store
chains, or major auto manufacturing companies
Section 7.3: Corporations
 Forming a Corporation
 Step 1: apply for a state license known as the
articles of incorporation
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The application includes six pieces of information
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Name and purpose of the proposed corporation
Address of the corporate headquarters
Method of fund-raising the corporation will use
Amount of money the corporation expects to raise
Names and addresses of the major corporate officers
Length of time the corporation is intended to exist
 Either indefinitely or for a specific period of time
If everything is in order a license or corporate charter is
granted permitting the formation of the new corporation
Section 7.3: Corporations
 Corporate Structure
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Board of Directors
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Made up of people from inside and outside the
company
 The corporations key decision making body
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Corporate Officers
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Chosen by the board
Typically experienced, professional managers hired to
make day to day decisions and advise the board on
production plans
Enforce policies and plans approved by the board in the
corporations’ various department heads
Section 7.3: Corporations
 Corporate Finances
 Stock
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Represents ownership of the firm
Issued in portions known as shares
 Ownership of these portions of stock make you a
shareholder
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Shareholders receive dividends (a portion of additional
profits made by the corporations paid to shareholders)
Common Stock
 Provides shareholders with a voice in how the company is
run and a share in potential dividends
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Preferred Stock
 Provides guaranteed dividends paid before any received by
holders of common stock, but holder not granted a voice in
running the corporation
Section 7.3: Corporations
 Corporate Finances continued
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Corporate bond
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A certificate issued by a corporation in exchange for
money burrowed from an investor
The corporation is in debt to the corporate bondholder
As a moneylender, the corporate bondholder is repaid
the principal (the actual amount of money that was
borrowed) and interest (the amount that the borrower
must pay for the use of the borrowed funds)
Section 7.3: Corporations
 Advantages of Corporations
 Benefits for Stockholders
 Limited liability (stockholder loss if corporation fails is limited
to how much stock they owned)
 Stockholder personnel property or funds cannot be seized to pay
corporate debts
At any time a stockholder can buy more stock, sell some of
their stock, or sell all their stock getting out of the corporation
completely
Benefits for Corporations
 Partners who incorporated are only liable for their initial
investment
 Relative ease to raise financial capital (increase the number
of stocks being sold)
 Professional managers run the company directly not the
board, which does not have the same level of expertise
 Longevity (a corporation lives on past when its original
founders and board members pass on)
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Section 7.3: Corporations
 Disadvantages of Corporations
 Corporate Issues
 Corporate charters difficult and expensive to obtain
 Federal and State governments closely regulate corporations
 Slow decision making process as ideas and plans are
debated by numerous managers until a consensus is found
 Stockholder Issues
 Stockholder removed from the actual running of the company
 Lack of control, most stockholders own a small percentage
of stocks making their influence minuscule
 Shared Issues
 Corporate profits are taxed twice
 Once as corporate profits, then again as dividends
Recap: Sections 7.1 – 7.3
 Sole Proprietorships vs. Partnerships
 What is a Corporation?
 Corporations can be funny
Section 7.4: Other Forms of Organization
 Other forms of business owners can include:
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Corporate combinations
Franchises
Cooperatives
Nonprofit organizations
Section 7.4: Other Forms of Organization
 Corporate Combinations
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The most common method of joining businesses is
through a merger (occurs when one company joins
with or absorbs another)
Three types of mergers
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Horizontal
Vertical
Conglomerate
Section 7.4: Other Forms of Organization
 Corporate Combinations continued
 Horizontal Combinations
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Vertical Combinations
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A merger between two or more companies producing
the same good or service or the purchase of one such
company by another
A merger between two or more companies involved in
different production phases of the same good or service
Conglomerate Combinations
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A merger of companies producing unrelated products
 Subsidiaries: companies owned by a larger parent
corporation that still makes products under their name not
the parent’s
Section 7.4: Other Forms of Organization
 Corporate Combinations continued
 Advantages of Combinations
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Efficiency
 By centralizing decision making within an industry
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Potential for lower costs
 Buying an existing business is usually less expensive than
building new plants or offices or hiring new employees
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Easier to acquire financial capital
 Larger companies seen as being more successful
encourages increased stockholder investment
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Disadvantages of Combinations
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Higher unemployment
 B/c of a merger, employees may be reassigned or fired
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Higher prices
 Mergers reduce competition
Section 7.4: Other Forms of Organization
 Franchises
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Some businesses share a name even though they
are separately owned
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In this case, one company agrees for a fee to let
another person or group set up a franchise
 Franchise: an enterprise that uses the original company's
name to sell goods and services
 The parent company owning the name is called the
franchisor
 The person or group opening the franchise is called the
franchisee
 Franchise examples: McDonalds, Holiday Inn
Section 7.4: Other Forms of Organization
 Cooperatives (co-op businesses)
 Owned collectively by their members
 Nonprofit businesses
 Works in a businesslike way to provide goods and
services while pursuing other goals such as
providing healthcare or maintaining cultural and
historical locations, financial gain is not the key
motivator
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Examples: American Red Cross, Boy Scouts of
America, and the American Heart Association
Income made by nonprofits are not taxed by the
government
Section 8.1: The US Labor Force
 The labor force includes all people who are at least 16
years of age and are working or actively looking for work
 Salary or wage: the hourly, weekly, monthly, or yearly pay
that a worker receives in exchange for his labor
 Entering the Labor Force
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Consideration when looking for work
 Wages
 Skills required
 Working conditions
 Location of employment
 Intrinsic rewards
 Market trends
Section 8.1: The US Labor Force
 Entering the Labor Force continued
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Wages
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When an occupation has many potential workers but
few available jobs, the wage rate tends to be low
High wages, on the other hand occur when the number
of workers who are interested in or qualified for an
occupation is limited
Skills
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Education, experience, and abilities all affect a potential
workers skills & determines what jobs he is eligible for
B/c businesses want to hire only qualified workers, skill
level can limit the supply of workers
Section 8.1: The US Labor Force
 Entering the Labor Force continued
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Working conditions
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In most US workplaces, federal and state laws carefully
regulate health and safety concerns
Some jobs and workplaces are high-risk to compensate
for these dangers pay tends to be higher than jobs of
low-risk
Location
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How far removed from you home do you as a worker
want to travel for employment?
Section 8.1: The US Labor Force
 Entering the Labor Force continued
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Intrinsic Rewards
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Nonmonetary reasons for working at a particular job
 These include: a worker’s pride and satisfaction in the
quality of work done and the status, prestige, or respect that
accompanies a job
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Market trends
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Industries expand to meet increasing needs and wants
of consumers, leading to an increase in the need fo
workers
 Derived demand: consumer’s demand for a product creates
a demand for labor and other resources needed to produce
the product
Section 8.1: The US Labor Force
 Changes in the labor force
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Capital-Intensive Economy
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Industrialization: the process of mechanizing all major
forms of production
Capital intensive: dependent on machines to produce
goods
Labor intensive: dependent on animals and people to
produce goods
The US has shifted from labor-intensive to capitalintensive due to the rapid industrialization that began in
the mid-1800s
Section 8.1: The US Labor Force
 Changes in the labor force continued
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Women in the workforce
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After taking numerous jobs in WWII as the men went off
to war, the number of women in the workforce has been
on the increase with 6 out of 10 women now members
of the workforce
Higher Levels of Education
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The higher your level of education the more money you
will make in the labor force
Section 8.1: The US Labor Force
 Government and Workers
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Antidiscrimination laws
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Equal Pay Act (1963): requires workers to pay women
and men the same wage for equal work
Civil Rights Act (1964): protects workers from employer
discrimination based on race, sex, religion, or national
origin
Affirmative Action
 Making up patterns of discrimination against women and
minorities in the workplace
 The Labor Department established a practice of relying on
quotas (numerical goals) for hiring and promoting women
and minorities
Section 8.1: The US Labor Force
 Government and Workers continued
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Minimum-Wage Laws
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The government passed legislation to ensure that
workers are paid a basic level of income
Minimum wage: the lowest hourly wage an employer
can legally pay a worker for a job
Section 8.2: Growth of Labor Unions
 Labor union is an organization of workers that negotiate
with employers for better wages, improved working
conditions, and job security
 Developments of Unions
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With industrialization in the 1800s, industrialists had total
control over wages and work hours
 Average factory wage, 10 cents an hour
 Average factory workday, 60 hours
 Child labor was also common
 Workplaces were noisy, unsafe, and unsanitary
Craft Union: composed of skilled workers such as plumber
and electricians
Industrial union: includes all workers in an industry, whether a
skilled, semiskilled, or unskilled
Section 8.2: Growth of Labor Unions
 Developments of Unions continued
 Knight of Labor (1886-1900)
 Industrial union that was open to workers from nearly all
trades
 Had nearly 700,000 members
 Supported an 8-hour workday, ending child labor, and
replacing capitalism with socialism
 American Federation of Labor (AFL)
 Loose confederation of craft unions that focused on gaining
higher wages and better working conditions
 To fight the AFL, businesses set up open shops, in which
workers did not have to join a union
 Unions preferred closed shops, in which workers could be hired
only if they first joined a union
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The Great Depression increased the numbers of the AFL
members
Section 8.2: Growth of Labor Unions
 Developments of Unions continued
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Congress of Industrial Organizations
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Created within the AFL to increase unskilled worker
membership, but CIO and the workers recruited were
expelled by the AFL
They became an independent industrial union that soon
gained United Steel Workers and United Automobile
Workers unions into its ranks
Section 8.2: Growth of Labor Unions
 Union Organizations
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Local Unions
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Local unions are made up of people who work for a
particular company in a particular area
National Unions
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Local unions from different part of the country are
organized into national unions
 Although union members are more likely to be active in their
local unions, national unions often are better known to the
public and hold greater political and economic power
because of their size
Section 8.2: Growth of Labor Unions
 Challenges to Labor Unions
 Three main reasons for the decline of unions
 Employer opposition
 Employer do not like unions because their demands cut into profits
 Employers move factories to the Midwest or the South were
unions are weak
 Employers can put employees into positions of authority that make
unions less necessary
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Changes in employment patterns
 Change from a manufacturing-based economy to a service-based
economy
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Negative public opinions
 Many believe that union demands for higher wages and increased
benefits have encouraged companies to move factories out of the
country
 Also the corruption of national unions and union leaders has
tarnished the reputation of unions
Section 8.2: Growth of Labor Unions
 Union Responses
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To fight declining membership unions:
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Unions improved training to provide union organizers
more skill in explaining the benefits of union
membership
Offering life and health insurance
 Government and Unions
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The government's harsh attitude toward unions in
the 1800s changed in the first decades of the 1900s
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The Congress and state legislatures passed laws
protecting the rights of workers
Section 8.3: Unions and Management
 Labor Contract Issues
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In negotiations between labor and management,
five major issues usually are discussed:
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Wages and benefits
Working conditions
Job security
Union security
Grievance procedures
Section 8.3: Unions and Management
 Labor Contract Issues continued
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Wages and Fringe Benefits
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Wages are set by labor contracts and vary according to
the type of position held and the number of years a
worker has been on the job
Fringe Benefits are nonwage payments commonly
including paid sick days, holidays, and vacation days,
health and life insurance, and savings and retirement
plans
Working Conditions
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Unions negotiate with management to ensure better
working conditions
Section 8.3: Unions and Management
 Labor Contract Issues continued
 Job Security
 Union negotiators typically seek contracts that give greater
job security the seniority system
 Seniority is the holding of privileges based on the number of years
a worker has been employed by a firm
 Labor contracts usually protect seniority by requiring that workers
with the least seniority be the first to lose their jobs
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Union Security
 Provides workers with the right to organize and join a union
enforced by the National Labor Relations Board
Grievance Procedures
 Grievances (formal complaints) usually are resolved by
committees made up of representatives of the union and the
management
Section 8.3: Unions and Management
 Contract Negotiations
 Collective Bargaining
 When negotiating a new contract w/ management, union
leaders speak for all the members they represent
 Union and management representatives meet to discuss
their goals and offer solutions and compromises
 Mediation
 Negotiators call in a neutral third party (mediator) to listen to
the arguments of both sides and to suggest ways in which an
agreement may be reached
 Arbitration
 Like mediation, arbitration calls for assistance of a negotiator
to arrive at contract
 An arbitrator’s decision is legally binding
Section 8.3: Unions and Management
 Union Tactics
 Strike
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Union members top working until contract demands are met
Strikes can involve three tactics:
 Picketing
 Union members parade in front of the plant while carrying
sign that explain their grievances
 Boycotting
 Primary boycott: an organized effort to stop purchases of a
firm’s products
 Secondary boycott: refusal to buy the goods and services of
any firm that does business with a company whose
employees are on strike
 Coordinated campaigning
 Involves the use of picketing as well as boycotts
Section 8.3: Unions and Management
 Management Responses
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How employers respond to strikes:
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Hiring replacement workers
Introducing a lockout
 Lockout occurs when an employer closes a company’s
doors to striking workers until negotiators reach a contract
agreement that is satisfactory to management
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Asking for an injunction
 Injunction (court order) to prohibit the dispatchers from
striking