Chapter 37

Business Organizations

What is Sole Proprietorship?

The simplest, most flexible, and easiest to start.

ONE Owner

Advantages

Have control over all decisions Pay scale Hours Inventory or what to sell

Keeps all profits.

Disadvantages

All financial responsibility Personal property may be taken to

pay for debt. Not as much start up capital. Limited experience and knowledge Stress Level Lots of Hours.

Partnership

An association of TWO or MORE Persons.

Co-Owners

Advantages

More start up capital Share expenses and debt. Combine labor, skill and knowledge

Disadvantages

Share Profit Lose some control over decisions Personality Conflicts.

How is a Partnership Ended?

Dissolution occurs when both parties agree to end.

Death Court Decree or Order

What is a Corporation?

A legal entity or artificial person in the eyes of the law.

Its existence it distinctly separate from real people who organize, own and run it.

Created by and for the people.

Advantages

Perpetual Life Limited Liability Transferability of Ownership

Interests Ability to attract large sums of

capital Professional management

Disadvantages

Taxes – 2 times. The corporation gets taxed on its income, and individuals get taxed when they receive their checks.

Hard to start and manage. Legal issues to face. Cost lots of money to get started.

S Corporation

Organized under Subchapter S of the Internal Revenue Code.

Only has 1 class of stock----Common

No more than 35 Shareholders. Taxes-Treated as a Partnership.

What is a Stock?

Share of ownership in a company.

Common Stock

Paid Second after Preferred Dividends depend on Income of

Corporation. Vary from quarter to quarter. Voting power. One vote per share

of stock.

Preferred Stock

Paid first Guaranteed a certain amount of

money-if the corporation has money to give.

No Voting Power

Shareholder

The person who owns the stock. Also called a Stockholder

Franchise

Corporation owned business that sells permission to own operate on their behalf.

Advantages of a Franchise Success rate is very high. Very little risk Consumer recognition Production Identification already

established. Marketing decisions already done for

you. Professional Management to assist

you.

Disadvantages of a Franchise

Limited control over decisions Marketing, advertising, product

choices are done for you. A franchise fee –large amount.

Legal Involvement of Government in Business

See Transparency