Business
Organizations
Chapter 8
Types
Types of Business Organizations
Sole
Propiertorships
Partnerships
Corporations
Sole Proprietorship
• A business owned and run by one
person.
• Forming a Proprietorship
only requires licenses and fees.
• You are ready for business as soon
as operations are setup.
• Can be run almost anywhere.
Sole Proprietorships
• Advantages
–Easy to start up
–Easy to manage
–Owner enjoys all profit w/o
sharing it with other owners
Sole Proprietorships
• Advantages (Cont.)
–Psychological satisfaction of
being one’s own boss
–Easy to leave the business
Sole Proprietorships
• Disadvantages
–Owner has unlimited liability
–Difficulty in raising financial
capital to start business
–Small size and efficiency
problems
Sole Proprietorships
• Disadvantages (Cont.)
–Owner often has limited
managerial experience
–Difficulty in attracting
qualified employees
Sole Proprietorships
• Disadvantages (Cont.)
–Limited life of business
• If owner quits, dies, or sells the
business
Partnership
• A business jointly owned by two or
more persons.
Types of Partnerships
General Partnership• All partners are responsible for the
management and financial
obligations of the business
•-
Partnerships
Limited Partnership• At least one partner is not active in
the daily running of the business.
Partnerships
•
•
•
•
Formation
Easy like a proprietorship
Articles of partnership
States how profit (or loss) will be
divided.
Partnership
• Advantages
–Easy to establish
–Easy to manage
–Lack of special taxes
–Easier to attract capital than a
proprietorship
Partnership
• Advantages
–Since they are bigger they are
more efficient
–Easier to attract top talent into
their organization
Partnership
• Disadvantages
–Each partner is fully
responsible for the acts of all
partners
–Has limited life
Partnership
• Disadvantages (Cont.)
–Potential conflict between the
partners
–Financial problems may cause
both the business and partners to
file for bankruptcy
Corporation
• A form of business organization
recognized by law as a separate
legal entity having all the rights of
an individual.
What does this mean?
• A corporation can buy or sell
property, enter into legal contracts,
and may be sued.
• The stockholders are the owners of
a corporation.
Formation
• Very formal and legal arrangement
• Must request permission from the
state or federal government.
Corporation
• Advantages
–Easy to raise capital (usually
done by issuing bonds)
–Hire professional managers to
run the firm
Corporation
• Advantages (cont.)
–Provides limited liability for its
owners (stockholders)
–Unlimited life (corporation goes
on even as ownership changes)
Corporation
• Advantages (cont.)
–Easy to transfer ownership
(simply sells stock)
Corporation
• Disadvantages
–Difficult and expensive to
obtain a charter
–Shareholders have little input
in how the business is run
Corporation
• Disadvantages (cont.)
–Double taxation of profits
• dividends are taxed as
corporate profit and as personal
income for the shareholder
Corporation
• Disadvantages (cont.)
–They are subject to more
governmental control than
other forms of business
• Stock- share of ownership in a
corporation that entitles the buyer
to a certain part of future profits of
a corporation.
• Dividend- profits paid to its
stockholders
• Franchise- A contract in which a
franchiser sells to another business
the right to use its name and sell its
products, they train you etc.
• The person or business buying
these rights, called the franchisee,
pays a fee that may include a
percentage of all money taken in.