In the United States, many important decisions are madeby economic institutions. Do you work at a business?Participate in a club? Chances are these businesses andeconomic institutions play a significant role in your life.

To learn more about how business organizations andeconomic institutions operate, view the Economics & Youvideo lesson 4: Business Organizations.

Know-Want-Learn Study Foldable Make this foldable to help you organizewhat you know, what you want to know, and what you learn about businessand labor.

Step 1 Fold two sheets of paperin half from top to bottom. Cut thepapers in half along the folds.

Reading andWriting Beforereading the chapter,write what you alreadyknow about the typesof businesses, laborunions, and businessesin our economy underthe tabs of yourfoldable. Also writeone question you haveon each tab. As youread, summarize what you learn undereach tab.

Step 2 Fold each of the fourpapers in half from top to bottom.

478Running a business involves risks as

well as expectations.

Cut alongthe foldlines.

1"

Cut 1 inch fromthe edge throughthe top flap only. Staple here.

Types of Businesses

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Catherine Karnow/Woodfin Camp & Assoc.

Step 3 On each folded paper,make a cut 1 inch from the side on the top flap.

Step 4 Place the folded papersone on top of the other. Staple thefour sections together and label thetop three tabs: Types of Businesses,Labor Unions, and Business in OurEconomy.

Chapter Overview Visit the CivicsToday Web site at civ.glencoe.comand click on Chapter OverviewsChapter 22 to preview chapterinformation.

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http://civ.glencoe.com

GUIDE TO READING

Main IdeaSole proprietorships,partnerships, and corporations are the three common forms of business organizations.

Key Termssole proprietorship,unlimited liability,financial capital,partnership, articles ofpartnership, corporation,charter, stock,stockholder, board ofdirectors, limited liability, double taxation,cooperative

Reading StrategyClassifying InformationAs you read the section,complete a diagram likethe one below by identify-ing at least two real-lifeexamples in each of thecategories.

Read to Learn What are the different

ways in which busi-nesses are organized?

What are the advan-tages and disadvan-tages of each type ofbusiness organization?

Types ofBusinesses

SECTION

A small restaurantin New Orleans

Sole Proprietorship

Partnership

Corporation

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480 Chapter 22 Business and LaborHazel Hankin/Stock Boston

Almost every day of your life you come into contact withsome kind of business. Businesses can be organized in a number of ways. Some are corporations, while others are small companies, ownedand operated by one individual or by a few people. The small businessremains the main economic force in many American communities: Small businesses employ the bulk of the workers in New Orleans and spell the future of the area economy,a local economist said. . . . In his latest study, TimothyRyan, dean of the University of New Orleans College of Business, found that over the past decade, therehad been a 36 percent increase in the number ofbusinesses that employ fewer than 100 employees.The number of firms with more than 100 employeeshad declined by 6.4 percent. . . . But, the bulk of thegrowth has been in sole proprietorships, which are up74.6 percent. . . .

The Times-Picayune (New Orleans),June 21, 2001

ProprietorshipsIt is one thing to dream about running your own business,

but it is something quite different to actually do it. Many peo-ple think of business ownership in terms of independence, free-dom, and profits. They tend to overlook competition,responsibility, and the possibility of failure. In this section, youwill study the different types of business organizations that arecommon in the American economy.You will discover that eachtype of business organization has advantages and disadvantagesin different situations.

The most common form of business organization in theUnited States is the sole proprietorship, or proprietorshipa business owned and operated by a single person. You haveseen such businesses in your neighborhoodbeauty salons orcleaners or pizza restaurants.Though common, the proprietor-ship is only one of three ways of organizing a business.

Look at the graphs of business organizations on page 481.Youll see that there are more proprietorships than any othertype of business.

Chapter 22 Business and Labor 481

StructureA proprietorship is the easiest form of

business to set up. Have you ever earnedmoney mowing lawns or babysitting? If so,you were a sole proprietor. Generally, any-one can start a sole proprietorship when-ever they want to.

AdvantagesThe biggest advantages of sole propri-

etorships are that the proprietor has full pridein owning the business and receives all theprofits. In addition, the proprietor can makedecisions quickly, without having to consult aco-owner, boss, or higher-up. This flexibil-ity means that the owner can make an imme-diate decision when problems arise.

DisadvantagesSole proprietorships have several disad-

vantages, though. First, the owner is finan-cially responsible for any and all problemsrelated to the business. This is calledunlimited liability. If the business hasdebts, the owners personal assets, or itemsof value such as houses, cars, jewelry, andso on, may be seized to pay the debts.

Second, sole proprietors find it difficultto raise financial capitalthe moneyneeded to run a business or enable it togrow larger. Most sole proprietors use theirown savings or credit cards or borrow fromfriends and family when they need moneyfor their businesses.

Another disadvantage is the difficulty ofattracting qualified employees. Many highschool and college graduates are morelikely to be attracted to positions with largerfirms that can offer better fringe benefitspaid vacations, sick leave, and health andmedical insurancein addition to wagesand salaries.

Identifying Who makesthe decisions in a sole proprietorship?

PartnershipsA partnership is a business owned by

two or more people. As you see on thegraph, there are fewer partnerships thanany other form of business.

Structure When they start the business, partners

draw up a legal agreement called articlesof partnership. This document identifieshow much money each will contribute andwhat role each will play in the business. Itclarifies how they will share profits orlosses. Finally, the document describeshow to add or remove partners, or evenhow to break up the business if they wantto close it down.

Forms of BusinessOrganization

Corporations86%

Proprietorships5%

Partnerships9%

Sales

Businesses can be organized in theUnited States in a number of ways.Which business organization accountsfor the largest amount of sales?

Partnerships8%

Corporations20%

Proprietorships72%

Number of Businesses

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482 Chapter 22 Business and Labor

Advantages Partnerships overcome some disadvan-

tages of a proprietorship. Because there aremultiple owners, partnerships can usuallyraise more money. If money cannot be bor-rowed, the partners can always take in newpartners to provide funds. Like proprietors,partners pay no corporate income tax. Inaddition, each owner often brings specialtalents to the business. As a result, each canoversee a particular part of the business,which helps the business succeed.

DisadvantagesOne disadvantage of the partnership is

that the legal structure is complex. When apartner is added or removed, a new agree-ment has to be made.

The main disadvantage, however, is thatthe owners have unlimited liability. Thismeans that each owner is fully responsiblefor all the debts of the partnership. Supposethat you and four others form an equalpartnership.You would own one-fifth of thebusiness and have the right to one-fifth ofits profits. Suppose, though, that someone

was hurt by the company and sued fordamages. If you were the only owner whohad any money, you could be required topay 100 percent of the damages.

Describing What is themain disadvantage of a partnership?

CorporationsThe corporation is a business recog-

nized by law that has many of the rightsand responsibilities of an individual. Infact, a corporation can do anything a per-son can doown property, pay taxes, sueor be suedexcept vote. One-fifth of allbusinesses are corporations.

Structure First, someone who wants to start a

corporation must get a chartera govern-ment document granting permission toorganize. The charter includes the name,purpose, address, and other features ofthe business. The charter also specifies theamount of stock, or ownership shares of thecorporation, that will be issued. The people

Partnership When two or more people pool their resources, they may form apartnership. Who assumes the risk in a partnership?

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Pictor

Chapter 22 Business and Labor 483

who buy this stockthe stockholdersbecome the owners of the corporation.The corporation uses the money receivedfrom selling the stock to set up and runthe business.

The stockholders elect a board ofdirectors to act on their behalf. The boardhires managers to run the corporation on adaily basis.The chart on page 484 shows therelationship of these groups. As you can see,the business owners and the managers of acorporation are d