Business Organizations
Chapter 8
Entrepreneur- person willing to
start his own business
You must be willing to take risk
 Government agencies will help you- Small
Business Administration
State departments of commerce
Community colleges and universities
 These agencies are often operated with
state and federal funds
 Help from internet.

How are businesses organized?
Sole Proprietorship

A business owned and
operated by one person

70% of all businesses in the
US are sole proprietorships
Advantages of a Sole Proprietorship




Ease of startup
Limited government
regulations including
taxes
Profits go to the owner
Freedom in making all
business decisions
Disadvantages of a
Sole Proprietorship


Unlimited liabilitycomplete legal
responsibility for all
debt.
Responsible for all
aspects of the business
including skills and
finances
Partnership


A business owned
and operated by
two or more
people.
Less than 10% of
all businesses in
the US are
partnerships
Types of Partnerships

General partnership

Limited partnership
General Partnership


An agreement in which both partners
agree to share equally in the profit and/or
loss of the business
Each partner is liable for all debts incurred
by the business
Limited Partnership


Each partner is liable
for any debts of the
business up to the
amount of his/her
investment
Must have at least one
partner who has
unlimited liability
Advantages of Partnerships






.
Relatively inexpensive to start
Combined financial resources and knowledgeeach has strengths
Shared management responsibilities
Increased potential for profits
Shared responsibility for risk
Taxed less than a corporation
Disadvantages of Partnerships



Partners can disagree about business
decisions
The decision or action of one partner is
legally binding on the other partner,
including finances
If one partner dies, the business is
dissolved
Corporation
Owned by many but treated by law
as though it were a person.
 To form a corporations you must:
1. Must register your company with the
govt. of the state you are in
2. Must sell stock
3. Elect a board of directors

2 types of stock

Common Stock-
4.
Gives investor part ownership
Right to a % of future profits
Voting rights at the annual stockholders meeting
Does NOT guarantee a dividend

Preferred Stock
1.
Do not have voting rights
Guaranteed a certain dividend each year
If corporation goes out of business they get 1st claim on what value
is left.
1.
2.
3.
2.
3.
Board of Directors



The founders of the corporation elect the
first board of directors
Stockholders will elect them after the 1st
one is named
Responsible for supervising and
controlling the corporation- It does NOT
run the day-to-day operations.- Board
hires officers to run the company.
Types of Corporations



Private (closed) -- Do not offer shares of
stock for sale to the general public
Public (open) -- Offer shares of stock for
sale to the general public
Subchapter “S” – Taxed like a sole
proprietorship and limited to 35 or less
shareholders
Advantages of Corporations





Delegation of specific management skills
Limited liability for stockholders
Life of the corporation is unlimited
Easier to secure capital
Stockholders can easily enter or leave the
business by purchasing or selling stock
Disadvantages of Corporations




Numerous legal restrictions
Complex to start up and dissolve
Taxed heavily
Complex record keeping
Franchise


A business or organization with the right to
use an established name and sell
trademarked products
Granted to a retailer or a wholesaler for a
fee
•$15,000 franchise fee
Lowest fee- each location varies
•12.5% of sales every week
•8% royalities
•4.5% advertising
•Must take a basic skills test in
Math and English
Advantages of Franchises



Reduced liability due to name recognition
and common products
Franchisor usually provides training
Business plan is established by the
franchisor, modified for the location and
franchisee
Disadvantages of Franchises



Freedom to make business decisions is
limited
Franchise fees may be expensive
Supplies and products must be purchased
directly from the franchisor