Special Types of Business Organizations

Not all business organizations fall neatly into the categories described. Other types of business organi­zation include the following.

The S Corporation—The Corporation For Small Business. A small business can enjoy many of the advantages of the corporation without being subject to corporate taxes if it organizes as an S cor­poration. S corporations take their name from a Congressional addition to the tax laws known as Subchapter S.

Unlike a regular corporation whose profits are sub­ject to the corporate income tax and whose dividends are subject to the individual income tax, S corpora­tions are taxed like a partnership. That is, profits or losses are allocated to the stockholders in proportion to the number of shares they hold and are reported on their personal tax returns.

ü Hurley Burleigh owns 25 percent of Blye's Barley, Inc. Blye's is an S corporation. Last year, the firm earned а $60,000 profit. Since his share of the profits came to $15.000, Burleigh reported that amount as income on his tax return.

In order to qualify for S corporation status, a firm must not have more than 35 stockholders and cannot own more than 80 percent of another corporation. Like regular corporations, the services of a lawyer usually are needed to organize an S corporation.

Not-For-Profit Corporations. As the name sug­gests, not-for-profit corporations do not seek to earn a profit. Rather, they serve particular educa­tional, social, charitable, or religious purposes. Since they earn no profits, they are not subject to income taxes. However, just like other corporations, their income must be great enough to cover operating expenses, including employees' wages. Then, because of the legal status of not-for-profits, the government allows them to hold in reserve a certain percentage of their income for operating use, Some not-for-profit corpo­rations you may be familiar with are the American Red Cross, the Urban League Inc., the March of Dimes and, of course, Junior Achievement Inc. These and many other not-for-profits are known for the volunteers they provide, but they also employ pro­fessional staffs. In fact, employment in not-for-prof­its has grown over 10 percent to 14.4 million people in the last decade.

The Public or Government-Owned Corporation.

While a private corporation is one established by private individuals, federal, state, and local govern­ments own and operate corporations. In most instances these were created to provide services that private enterprise was unable or unwilling to offer. The U.S. Postal Service, the Federal Deposit Insurance Corporation, Amtrak, some metropolitan rapid transit services, and other publicly owned util­ities are examples of government-owned corpo­rations.

Cooperatives. Cooperatives (or co-ops) are associa­tions of individuals or companies organized to per­form business functions for their members. You may already be familiar with:

• Housing co-ops: multiple dwelling units owned by their tenants.

• Consumer co-ops: retail businesses owned by members who share in the profits and/or purchase goods and services at lower cost.

• Producer co-ops: companies that manufacture and market products on behalf of their members. One of the largest of these is Ocean Spray Cranberries, Inc. This cooperative of nearly a thousand cranberry and citrus growers from around the country has annual sales of nearly $500 million.

Franchises. A franchise is a license to operate an individually owned business as if it were part of a large chain. Many clothing, real estate, fast food, and motel chains are fran­chise operations.

Franchises provide advantages. Since the money to pay for a new franchise is provided by the franchisee (those who purchase the franchise), franchisors (cor­porations that sell their franchises to others) are able to expand their operations at little cost to them­selves. Franchisors also benefit because franchisees are business owners rather than employees. This provides the kind of incentive that can lead to increased sales and profits.

Those who buy franchises also benefit. Many firms provide training programs, financial assistance, and other kinds of help in operating and managing the business. Franchisees also benefit from the sales and name recognition generated by the company's advertising campaigns and reputation.

Franchises do have some disadvantages. Franchisors retain control over their franchisees. They may dictate how the business is operated or decorated, or even what types of uniforms employees must wear. In addition, many franchisors require that (he products must be pur­chased from the parent company at a price it chooses.

Date: 2015-02-16; view: 1067