As we discussed in the previous tutorial, sole proprietorships and partnerships tend
to lack the resources required to carry out huge, expensive production.
This is where the concept of the corporation comes in.
A corporation is a complex business organization classified as a legal entity, which is frequently
owned by individual stockholders, each of whom has limited liability for its debts.
If a corporation were to issue 100 shares of stock, and you bought one share, you would
own 1/100th of the corporation.
A sole proprietorship has no legal identity outside of the owner.
A corporation, however, has a completely separate identity from the identities of its owner
or owners.
So when a sole proprietorship or partnership becomes incorporated, it becomes its own legal
business structure which the owners can use to conduct business.
A corporation can then decide to issue stock, essentially selling a certain percentage of
their profits.
Being a shareholder of a corporation means one does not carry personal responsibility
for the corporation’s actions.
Shareholders can only lose the amount of money they have invested in the business, but they
can gain a lot of profit if the business does very well.
The business itself benefits by being able to raise lots of money by selling shares on
the stock market, which we will investigate in more detail later in the series.
When a corporation has its headquarters in one country but branches out into other countries,
it is called a multinational corporation.
Multinational corporations often yield tremendous power over both politics and culture in the
countries where they do business.
Now, just because a business is successful, it doesn’t mean its workers are happy.
Workers who feel they are paid too little, work too many hours, or work in unsafe conditions
can seek leverage against the businesses they work for by organizing to form labor unions.
An individual worker may not have the power to change how a business acts, but by joining
forces, they can actually get their business to make reforms.
Unions first formed in response to changes in working conditions brought on by the Industrial
Revolution of the late 1700s and early 1800s.
Union members quickly found an effective strategy to get their employer to address their demands.
That was the strike, which is simply workers all simultaneously deciding not to work.
If enough workers go on strike, it can drastically reduce a business’s production.
For this reason, strikes can be very effective.
Another effective tool for unions is collective bargaining, in which a union and the management
of a business meet to negotiate a fair contract.
Unions can also provide legal support to workers.
Despite all of this, union membership has declined dramatically around the world in
recent decades for several reasons.
First, governments have passed “right-to-work” laws.
Right-to-work laws ban mandatory union membership.
Making union membership mandatory makes them more effective at bargaining, but proponents
of right-to-work laws argue that workers shouldn’t be forced to join a union if they don’t
want to.
A second reason for the decline of union membership is the decline of manufacturing.
Because most manufacturing has since been outsourced to foreign countries, many manufacturing
workers who were also union members lost their jobs.
To be clear, the term “outsource” simply means to get a good, service, or labor from
a foreign source, often in order to save money.
A third reason for the decline of union membership is that unions are simply less necessary now
due to more government laws setting workplace safety standards, providing unemployment insurance,
and wage protections.
However, workers probably get more empowerment if the business they work for is a cooperative,
or co-op.
A cooperative is a business, or sometimes business organization, owned and operated
by a group of individuals for their shared benefit.
The members, which can include both workers and non-workers, make decisions, and their
purpose is mainly to help each other, as opposed to just making a profit.
Speaking of profit, every member may get a portion of the profit in the co-op.
Plus, they often don’t have to pay taxes on earnings.
We should also make it clear that not all businesses exist purely for profit.
There are also nonprofit organizations.
Nonprofit organizations have no owner and are often run by a board of directors.
Governments exempt them from paying income taxes and often give them additional tax breaks.
Nonprofits can’t issue stock, and any money made must be invested in the organization.
But the main lesson here is that there is power in numbers, and both businesses and
workers have a lot to gain by joining forces to form partnerships that blossom into corporations,
or by forming labor unions.