1. Business
Organizations
Chapter 8
1

2. SOLE PROPRIETORSHIPS
Section 1
2

3. Sole Proprietorships
• A sole proprietorship is a business owned and managed
by a single individual.
• In this type of business organization the lone
entrepreneur earns all of the firm’s profits and is
responsible for all its debts.
• More than 70 percent of all businesses in the United
States are sole proprietorships but they are small,
generating only 4 percent of all U.S. sales.
3

4. Risks & Benefits: Sole Proprietorships
• Sole proprietorships are easy to start and when you are
the sole owner, you receive all of the profits from the
business.
• On the other hand, you have total liability for the
company and could lose your investment as well as other
personal property if the business fails.
4

5. Entrepreneurs
• The potential to make a profit is a big incentive for
entrepreneurs to start a sole proprietorship.
• Entrepreneurs must be willing to assume total
responsibility and take risks.
• A successful entrepreneur is:
• Optimistic
• Enthusiastic
• Focused on the future
5

6. The Entrepreneurial Spirit
Entrepreneurs…
• Seek out responsibility
• Are willing to take risks
• Believe in themselves
• Desire to reach their full potential
• Have high energy levels
• Are upbeat and optimistic
• Look toward the future rather than the past
• Value achievement over money
• Maintain flexibility as they face new challenges
• Are strongly committed to their goals 6

7. Advantages
• Sole proprietorships have many advantages, including:
• They are easy to start - there is only a small amount of paperwork
and legal expense
• There are minimum requirements - sole proprietors need only a
business license, a state permit if not working out of their home, and
a name for their business
• There are few regulations - sole proprietorships are the least
regulated form of business organization.
• However, sole proprietorships are subjected to zoning laws, which
may prohibit them from operating businesses out of their homes.
• They are the sole receiver of profit - the owner gets to keep all of
the profits after paying income taxes.
• Sole proprietors have full control - a high level of freedom
allows sole proprietors to run their company as they wish.
7

8. Disadvantage
• Unlimited liability - sole proprietorships are fully
and personally responsible for all their business
debts
• Limited access to resources
• Sole proprietorships must buy all the necessary
resources they need to run their business, which can
be very expensive.
• They may lack in human capital.
• Demands on a sole proprietorships can be personally
and financially exhausting.
8

9. Lack of Performance
• Sole proprietorships
often have trouble
finding and keeping
good employees.
• Many sole
proprietorships do not
have the ability to
offer fringe benefits.
• How does this
cartoon show a major
disadvantage of a sole
proprietorship? 9

10. PARTNERSHIPS
Section 2
10

11. Partnerships
• A partnership is a business organization owned
by two or more persons who agree on a specific
division of responsibilities and profits.
• There are three types of partnerships
• General partnerships
• Limited partnerships
• Limited liability partnerships
11

12. Types of Partnerships
• General Partnerships
• All parties share equally in both responsibility and liability
• Limited Partnerships
• Only one partner is required to be a general partner
• Limited partners only contribute money; they are not liable for
the firm’s actions
• Limited Liability Partnerships
• This partnership acts like a general partnership, except that all
partners have limited personal liability in certain situations, such
as another partner’s mistakes. 12

13. Advantages
• Ease of start-up
• easy and inexpensive to establish
• partnership agreement not necessary but good idea
• spells out the rights and responsibilities of each partner.
• Little government regulation
• More capital - with more people involved, more capital can be
raised.
• Better employees - partnerships can attract and keep talented
employees more easily than sole proprietors can
• Taxes - partnerships are not subjected to any special taxes
• Shared decision-making - each partner brings different
strengths and skills to the business 13

14. Disadvantages
• Unlimited liability - at least one partner has unlimited liability
(unless the partnership is an LLP) which means that person
could lose everything
• Lack of performance - a partnership may not outlast the life of
one of the general partners
• Potential for conflict -
interpersonal conflicts between
partnerships can lead to
disagreements and, in some
cases, an end to the
partnership
14

15. Franchises
• Sometimes people opt to form a business
franchise instead of a partnership.
• A business franchise is a semi-independent business
that pays fees to a parent company.
• In return, the business is granted the exclusive right to
sell a certain product or service in a given area.
15

16. Franchises, cont.
Advantages
• Built-in reputation
• Management training
and support
• Standardized quality
• National advertising
programs
• Financial assistance
• Centralized buying
power
Disadvantage
• High franchising fees and
royalties
• Strict operating
standards
• Purchasing restrictions
• Limited product line
16

17. CORPORATIONS, MERGERS, &
MULTINATIONALS
Section 3
17

18. Corporations
• The most complex form of
business organization is the
corporation.
• Individual stockholders own
stock
• part-owner of the company that
issues the stock.
• In the United States,
corporations account for
about 20% of all businesses
but more than 80% of all
sales.
18

19. Types of Corporations
• Closely held corporations
• Corporations that issue stock to only a few people,
often family members.
• Publicly held corporations
• Corporations that sell stock on the open market.
• Owners of a corporation elect a board of directors that
makes all the major decisions.
19

20. Advantages
• Incorporation, or forming
a corporation, offers
advantages to
stockholders and the
company itself.
• Advantages for
stockholders:
• Unlimited liability
• Flexibility with easily
transferable stock
20

21. Advantages, cont.
• Advantages for the
company:
• More potential for
growth and longevity
• Ability to raise money
by borrowing
• No need for special
managerial skills
21
Corporations have a self-interest in developing profitable
products and services. For example, consumer concern about
global warming has led many corporations to develop eco-
friendly technology.

22. Disadvantages
• Difficulty and expense of start-up
• Corporate charters can be difficult, expensive, and
time consuming to create.
• Double taxation
• Corporations must pay corporate income taxes as well
as taxes on the dividends paid to stockholders
• Loss of control
• Owners do not manage the activities of a corporation
• More regulation
22

23. Corporate Combinations
• Corporations can grow larger by merging with
another corporation.
• There are three types of mergers:
• Horizontal mergers are the combination of two or
more firms competing in the same market with the
same good or service, such as the merger between
Cingular and AT&T in 2004.
• Vertical mergers join two or more firms involved in
different stages of producing the same good or
service.
• Conglomerates occur when three or more businesses
that produce unrelated products or services merge. 23

24. Horizontal & Vertical Mergers
24

25. Multinational Corporations
• Multinational corporations are the world’s largest
corporations and they sell their goods and services in more
than one country.
• Advantages
• Benefit consumers by producing jobs and products around the
world.
• Help poorer countries enjoy better living standards
• Spread new technology across the globe
• Disadvantages
• Unduly influence culture and politics in countries in which they
operate.
• Jobs in poorer countries are often marked by low wages and poor
working conditions.
25

26. OTHER ORGANIZATIONS
Section 4
26

27. Cooperatives
• A cooperative is a type of business organization owned
and operated by a group of individuals for their shared
benefit.
• First instituted by Benjamin Franklin, cooperatives are
based on the following principles:
• Voluntary and open membership
• Control of the organization by its members
• Sharing of contributions and benefits by members
• Cooperatives do not have to pay income taxes because
they are not corporations.
• Cooperatives are found in many industries including
farming and health care.
27

28. Types of Co-ops
• Consumer cooperatives are retail outlets owned and
operated by consumers.
• They sell merchandise to members at reduced prices.
• Service cooperatives are co-ops that provide a service.
• Some service co-ops offer discounted insurance, health care, or
legal help.
• Producer cooperatives are agricultural marketing co-ops
that help members sell their products.
• Members focus their attention on their crops or livestock while
the co-op markets the goods for the highest possible price.
28

29. Nonprofits
• Nonprofit organizations function like a business
but do not operate for the purpose of generating
profit.
• Examples of nonprofits include museums, public
schools, the American Red Cross, hospitals, churches,
and many other groups and charities.
• Nonprofits, like co-ops, are exempt from paying
income taxes, but the nonprofit must meet certain
requirements to qualify for tax-exempt status.
• Nonprofits have limits on their political activity. 29

30. Types of Nonprofits
• Professional organizations
• Work to improve the image, working conditions, and skill levels of
people in particular occupations
• Keep members up-to-date on industry trends.
• Set codes of conduct that members must follow.
• Business Associations
• Promote the collective business interests of a city, state, or other
geographical area
• Trade associations
• Promote the interests of particular industries.
• Many trade associations hire lobbyists to work with state
legislatures and Congress to try to influence laws that affect an
industry. 30