Business and LaborChapter 22

Types of Businesses1. Sole proprietorship Most common form of business organization Business owned and operated by a single

person Easiest form of business to set up Advantages

Owner receives all profits Decisions on how to run the business can be

made quickly Disadvantages

Owner responsible for all problems related to business

Owner has unlimited liability, all personal assets of owner may be seized to pay debts

Hard to raise financial capital Difficult to attract qualified employees, can’t

offer fringe benefits (insurance, sick leave, etc.)

Types of Businesses

Partnerships Owned by two or more people Business partners bound by articles of partnership

Determine how much each member will contribute, what role each person has

How profits will be shared How partners will be added or removed

Advantages Multiple owners can raise more money Owners do not pay corporate income tax Each owner brings certain skills to help the business

Disadvantages Legal structure is complex Owners have unlimited liability

Types of Businesses3. Corporations Has many of the rights and responsibilities

of an individual Can do anything a person can do (own

property, pay taxes, get sued) except vote 20% of all businesses are corporations Charter is a government document that

grants them permission to organize Specifies amount of stock that will be issued Stockholders become owners of the

corporation Money received from selling stock is used to

set up and run company Stockholders elect a board of directors to

act on their behalf Board hires managers to run the company

on a daily basis

Types of Businesses

Advantages Easy to raise financial capital (sell shares of stock) Ability to raise capital allows corporations to grow huge Many have economies larger than some countries Board of directors can hire managers to run company and replace them if they fail Ownership can be easily transferred by selling stock Corporations have limited liability, if company fails individuals not liable for

companies debts Disadvantages

Expensive and complex to set up Owners have little say in business because of stockholders Subject to more regulation by government Have to release financial reports to keep shareholders informed of business Stockholders subject to double taxation (taxes on corporation and on

shareholder earnings

Types of Businesses Other types of business

organizations Non-profits

Uses surplus funds to promote interests of members (hospitals, churches and social service agencies)

Earnings not distributed to owners Exempt from income and property

taxation Cooperatives

Voluntary organization that is formed for economic activity

Buy bulk goods on behalf of members Farmers Cooperatives members sell

crops directly to central markets

Corporations, Mergers and Multinationals

Corporate Combinations Companies combine with other companies to create larger more

efficient firms Can sell goods at a lower priceThree types of mergers Horizontal Merger

Two or more companies that compete in the same market and provide the same good or service

Try to improve efficiency, reduce costs and boost revenue Monitored closely by the federal government so they do not create a

monopoly Vertical Merger

Companies involved in different stages of producing good or service New firm can control all phases of production Typically do not lessen competition

Conglomerate Buy companies that produce unrelated goods Have more that three businesses that produce unrelated products One business earns a majority of the firms profits

Corporations, Mergers and Multinationals

Multinational Corporations Produce goods throughout the world Operate in more than one country at a time Must obey laws and pay taxes in all countries where

they operate Many have operating budgets bigger than most

governments Advantages

Provide jobs Spread technology Help poorer nations improve their standard of living

Disadvantages Have too much influence over culture and politics in

countries where they operate Working conditions are poor

Other OrganizationsBusiness franchise Semi independent business that

pays fees to parent company In return it has the exclusive

right to sell a certain product in a given area

Franchiser (parent company) develops products and works with local franchise to produce and sell product Allows owners a degree of

control and owners benefit from support of parent company

Other OrganizationsAdvantagesA. Come with a built in reputationB. Management and training supportC. Standardized quality

owners follow certain rules and processes to guarantee product qualityD. National advertising E. Financial assistanceF. Centralized buying power

buy materials in bulk to keep costs downDisadvantagesG. High franchising fees and royalties

Royalties are a share of earningsB. Strict operating standards

Must follow all rules in the franchise agreementC. Purchasing restrictionsD. Limited product line

can only sell approved products

Labor Unions Labor unions are groups of workers who band together to gain

better pay and working conditions 14% of American workers belong to a union Two types of unions Trade unions- all workers perform the same skill (craft union) Industrial unions- all workers in the same industry

Labor Unions Organized labor operates at three levels-

local, national and the federation Local- members of a factory, company or

geographic area Deals with a company negotiating a

contract and monitors the terms of a contract

National unions help set up local unions and to negotiate contracts between local unions and companies Provides lawyers and staff to negotiate

contracts for the entire industry Federation level- AFL-CIO is a union

that represents 13 million workers worldwide

Labor Unions Some criticize unions for trying to control the labor supply Some unions support the closed shop where a worker had to

be a union member to be hired 1947 Taft-Hartley Act closed shops became illegal in any

company that participated in interstate commerce More common now is the union shop

Companies hire nonunion workers but they must join the union to begin working

Taft Hartley allows states to ban this activity These states are called right to work states that prevent unions

from forcing workers to join unions Modified union shops workers can join union if they want to,

but are not required to join Union can’t be brought into a workplace unless a majority of

workers vote for it National Labor Relations Board oversees union activity

Labor Unions Union carries out collective bargaining

Officials from union and company meet to discuss terms of worker contacts (hours worked, wages, benefits)

When two parties can’t agree they try mediation Third party comes in to help both sides reach an

agreement Some cases workers choose arbitration

Where third party decides how to settle the disagreement Both parties agree in advance to accept what arbitrator

decides Unions and management use different tools to try to

get other side to accept agreement Workers can strike where all union workers refuse to

work Unions can encourage the public to boycott the

business’ products Companies can lockout workers until they meet their

terms

Business in Our EconomySection 3

Business in Our Economy

Businesses play many different roles in our economy Consumers- purchase goods and

services from other businesses (raw materials, office supplies, etc.)

Employers- provide jobs and pay workers

Producers- produce a wide variety of goods and services for consumption

Business in Our EconomyResponsibilities of Businesses1. Responsibility to consumers

to make sure products are safe To advertise truthfully If they do not follow these rules government can step in and

regulate the industry or pull the products from the market2. Responsibilities to owners (and stockholders)

Especially important for corporations To protect shareholders corporations release financial

information regularly One purpose of transparency is to provide investors with

information to see if investment is worth the risk Government can step in if companies are not honest

Business in Our Economy

3. Responsibility to employees Give workers a safe workplace Treat workers fairly without discrimination 1990 Americans with Disabilities Act

keeps employees from discriminating on the basis of mental or physical disabilities

4. Responsibilities to the Community Many businesses feel they have a social

responsibility to pursue goals that benefit society as well as themselves

Many companies give money to charities or take an active role in their community