Organizational Management Week 4 PDF

ORGANIZATIONAL MANAGEMENT WEEK 4 PREPARED BY: ABM DEPARTMENT  LEARNING OBJECTIVES 1. Identify the different Types of Business Organizations 2. To know the advantages of the Corporate form of Businesses 3. To familiarize the different types of...

ORGANIZATIONAL MANAGEMENT WEEK 4 PREPARED BY: ABM DEPARTMENT  LEARNING OBJECTIVES 1. Identify the different Types of Business Organizations 2. To know the advantages of the Corporate form of Businesses 3. To familiarize the different types of Cooperative  What is a "ORGANIZATION"? A collection of people working together to achieve a common purpose. What is a "BUSINESS ORGANIZATION"? A collection of people working together to achieve a common purpose in relation to their organization's mission, vision, goals and objectives, sharing a common organizational culture.  What is a "ORGANIZATIONAL CULTURE"? the set of beliefs and values shared by organization members which guide them as they work together to achieve their common purpose. Business Organization according to its forms: 1. Sole Proprietorship 2. Partnership 3. Corporation  SOLE PROPRIETORSHIP Is a business owned and operated by a single person only. It is easy to set- up and is the least expensive among all forms of ownership. The owner of the business may suffer unlimited liability; meaning, the creditors of the business may run after up to the personal properties of the business owner if the business cannot pay them. The form sole proprietorship is typically adopted by small business organizations.  Characteristics of a sole proprietorship 1. No legal formalities are necessary to organize such businesses, and usually business operations can begin with only a limited investment (called Capital). 2. A sole proprietorship does not pay taxes on profits at the business level but instead pays taxes based on the company’s earnings on the owner’s personal income tax.  Characteristics of a sole proprietorship.3. The business owner is personally liable for all debts of his or her company. This is called unlimited liability. Creditors can take and use your personal assets to cover the company’s outstanding business debt if the company does not have enough money to pay debt. 4. A sole proprietor can take money out of the business any time he or she wants which is recorded in an contra-equity account called Drawing or Withdrawals.  PARTNERSHIP Is a business entity operated and owned by two or more persons who contribute possessions to the firm. The partners divide among themselves the profits and loss of the business. In general partnerships, all partners have limitless liability. In limited partnerships, creditors cannot run after the personal assets of the limited partners  Characteristics of a partnership 1. As with a sole proprietorship, if the company cannot pay its debts the partners personal assets can and will be used to pay off the debt. See how this unlimited liability is even riskier in the case of a partnership. Each partner is personally liable not only for his or her own actions but also for the actions of all the partners. If, through mismanagement by one of your partners, the partnership is forced into bankruptcy, the creditors can go after you for all outstanding debts of the partnership.  Characteristics of a partnership 2. Another fun one is mutual agency. This means partners can sign contracts on behalf of the company with or without the other partner’s knowledge or approval. This makes the unlimited liability part very scary! 3. Partnership agreements can be written or verbal, yes, verbal! Any partner contributions are recorded in their own Capital account.  Characteristics of a partnership 4. As with a sole proprietorship, the business itself does not pay taxes. Instead, the earnings of the company are divided between the partners using an agreed upon rate and the earnings are taxed on each partner’s personal income tax.  Characteristics of a partnership 5. A partnership has a limited life meaning that when the partners change for any reason, the existing partnership ends and new one must be formed. 6. Partners can take money out of the business when they want. This is recorded in each partner’s Withdrawal or Drawing account. SAMPLE DRAWING ACCOUNT  CORPORATION Is a business entity that has a separate and distinct legal personality from its owners. Ownership in a stock corporation is represented by shares of stock. The owners (stockholders) benefit from limited liability but have limited involvement in the company's operations. The board of directors, an elected group from the stockholders, controls the activities of the corporation.  ADVANTAGES OF THE CORPORATE FORM OF BUSINESS Corporations have many advantages over sole proprietorships and partnerships. Although corporations may have more owners than partnerships, both have a broader base for investment, risk, responsibilities, and talent than do sole proprietorships. Since corporations are more comparable to partnerships than to sole proprietorships, ADVANTAGES CONTRASTS THE PARTNERSHIP WITH THE CORPORATION.  advantages contrasts the partnership with the corporation. 1. Easy transfer of ownership 2. Limited liability 3. Continuous existence of the entity  advantages contrasts the partnership with the corporation. 4. Easy capital generation 5. Professional management 6. Separation of owners and entity (no mutual agency)  Easy transfer of ownership In a partnership, a partner cannot transfer ownership in the business to another person if the other partners do not want the new person involved in the partnership. In a publicly held (owned by many stockholders) corporation, shares of stock are traded on a stock exchange between unknown parties; one owner usually cannot dictate to whom another owner can or cannot sell shares.  Limited liability Each partner in a partnership is personally responsible for all the debts of the business. In a corporation, the stockholders are not personally responsible for its debts; the maximum amount a stockholder can lose is the amount of his or her investment.  Continuous existence of the entity In a partnership, many circumstances, such as the death of a partner, can terminate the business entity. These same circumstances have no effect on a corporation because it is a legal entity, separate and distinct from its owners.  Easy capital generation The easy transfer of ownership and the limited liability of stockholders are attractive features to potential investors. Thus, it is relatively easy for a corporation to raise capital by issuing shares of stock to many investors. Corporations with thousands of stockholders are not uncommon.  Professional management Generally, the partners in a partnership are also the managers of that business, regardless of whether they have the necessary expertise to manage a business. In a publicly held corporation, most of the owners (stockholders) do not participate in the day-to-day operations and management of the entity. They hire professionals to run the business on a daily basis. Separation of owners and entity (no mutual agency) Since the corporation is a separate legal entity, the owners do not have the power to bind the corporation to business contracts. This feature eliminates the potential problem of mutual agency that exists between partners in a partnership. In a corporation, one stockholder cannot jeopardize other stockholders through poor decision making. The corporate form of business has the following disadvantages Corporate form of Business Advantage Double taxation Government regulation  Double taxation Because a corporation is a separate legal entity, its net income is subject to double taxation. The corporation pays a tax on its income, and stockholders pay a tax on corporate income received as dividends.  Government regulation Because corporations are created by law, they are subject to greater regulation and control than single proprietorships and partnerships.  Incorporators Corporations are chartered by the state. Each state has a corporation act that permits the formation of corporations by qualified persons. Incorporators are persons seeking to bring a corporation into existence. Most state corporation laws require a minimum of three incorporators, each of whom must be of legal age, and a majority of whom must be citizens of the United States.  Domestic corporation The laws of each state view a corporation organized in that state as a domestic corporation and a corporation organized in any other state as a foreign corporation. If a corporation intends to conduct business solely within one state, it normally seeks incorporation in that state because most state laws are not as severe for domestic corporations as for foreign corporations.  Domestic corporation Corporations conducting interstate business usually incorporate in the state that has laws most advantageous to the corporation being formed. Important considerations in choosing a state are the powers granted to the corporation, the taxes levied, the defenses permitted against hostile takeover attempts by others, and the reports required by the state.  Charter corporation Once incorporators agree on the state in which to incorporate, they apply for a corporate charter. A corporate charter is a contract between the state and the incorporators, and their successors, granting the corporation its legal existence. The application for the corporation’s charter is called the articles of incorporation. Different Information of Incoporation Name of corporation. Location of principal offices. Purposes of business. Number of shares of stock authorized, class or classes of shares, and voting and dividend rights of each class of shares. Value of assets paid in by the incorporators (the stockholders who organize the corporation). Limitations on authority of the management and owners of the corporation.  bylaws The bylaws are a set of rules or regulations adopted by the board of directors of a corporation to govern the conduct of corporate affairs. The bylaws must be in agreement with the laws of the state and the policies and purposes in the corporate charter. The bylaws contain, along with other information, provisions for the ff. (1) the place, date, and manner of calling the annual stockholders’ meeting (2) the number of directors and the method for electing them (3) the duties and powers of the directors (4) the method for selecting officers of the corporation.  Types of Cooperative Agricultural cooperatives help producers assure markets and supplies, achieve economies of scale, and gain market power through jointly marketing, bargaining, processing, and purchasing supplies and services. Arts and Crafts cooperatives help artists and crafts persons maximize their earning potential and working conditions. Business cooperatives are formed by businesses to purchase supplies or obtain services at a lower cost.  Types of Cooperative Child Care and Preschool cooperatives provide high-quality enrichment and educational programs for children and their families. Credit Unions provide at-cost financial services to a wide cross-section of the population. Custodial and cleaning services cooperatives create employment opportunities and provide the benefits of ownership for their worker- members. (more information in the next section under worker cooperatives)  Types of Cooperative Food cooperatives and buying clubs gain access to grocery products using a consumer-directed approach. Hardware wholesaling cooperatives, like other business cooperatives, allow independent businesses to be competitive by cutting expenses and adding member services through joint purchasing and marketing. (more information in the next section under business cooperatives). Housing cooperatives offer ownership options for Californians from all income groups.  Types of Cooperative Insurance cooperatives operate much like retail cooperatives except that they provide insurance services instead of consumer goods. Student cooperatives are set up and run by students to meet specific needs. Utility cooperatives provide utilities such as communication services, electricity, and water to their members. Worker cooperatives create employment opportunities and provide the benefits of ownership to members.  Cooperative Principles 1. The User-Owned Principle 2. The User-Control Principle 3. The User-Benefit Principle The User-Owned Principle The people who own and finance the cooperative are those who use the cooperative. The User-Control Principle The people who control the cooperative are those who use the cooperative. They democratically elect a board of directors. The board sets the overall operating policies, approves the annual budget, oversees its operation, and distributes the benefits derived from use of the cooperative to members. The board also hires professional management to handle the day-to-day operations.  The User-Benefit Principle The cooperative's sole purpose is to provide and distribute benefits to its users on the basis of their use. While the goal of agricultural cooperatives is not to generate a return on investment, they, like all businesses, must cover costs and generate capital to cover expansion and unforeseen emergencies.  Thank you for listening! Prepare for Quiz