Forms of Business OrganizationForms of Business Organization(sole proprietorship, partnership, and corporation)(sole proprietorship, partnership, and corporation)

Traditional Command Market

What to produce?

TraditionTradition Gov’tGov’t

How to produce?

TraditionTradition Gov’tGov’t

Who gets the item?

TraditionTradition Gov’tGov’t

Traditional Command Market

What to produce?

TraditionTradition Gov’tGov’t What the consumer will buy / Profit

How to produce?

TraditionTradition Gov’tGov’t

Who gets the item?

TraditionTradition Gov’tGov’t

Traditional Command Market

What to produce?

TraditionTradition Gov’tGov’t What the What the consumer consumer will buy / will buy /

ProfitProfit

How to produce?

TraditionTradition Gov’tGov’t Cheapest way

Who gets the item?

TraditionTradition Gov’tGov’t

Traditional Command Market

What to produce?

TraditionTradition Gov’tGov’t What the What the consumer consumer will buy / will buy /

ProfitProfit

How to produce?

TraditionTradition Gov’tGov’t Cheapest Cheapest way way

Who gets the item?

TraditionTradition Gov’tGov’t Consumer with

money

What is Business OrganizationWhat is Business Organization

A way to organize your business so A way to organize your business so that:that:– The business is easy to runThe business is easy to run– You can come up with money to run the You can come up with money to run the

companycompany– You reduce your legal liability You reduce your legal liability

(responsibility)(responsibility)– Fits your “style”Fits your “style”

Sole ProprietorshipSole Proprietorship

One OwnerOne Owner

Most popular in the United StatesMost popular in the United States

Sole ProprietorshipSole ProprietorshipAdvantagesAdvantages– Easy to start / stopEasy to start / stop– You get all of the You get all of the

profitsprofits– You have full You have full

controlcontrol

DisadvantagesDisadvantages– Unlimited personal Unlimited personal

liabilityliability– Limited access to Limited access to

money from banksmoney from banks– Lack of permanenceLack of permanence

PartnershipPartnership

Owned by two or more peopleOwned by two or more people

Various forms of partnershipsVarious forms of partnerships– general (all share equally)general (all share equally)– Limited (one has unlimited liability, the Limited (one has unlimited liability, the

others do not)others do not)– Limited Liability Partnerships (LLP)Limited Liability Partnerships (LLP)

(all partners have limited liability)(all partners have limited liability)

PartnershipsPartnershipsAdvantagesAdvantages– Easy to startEasy to start– Shared decision Shared decision

makingmaking– Greater ability to Greater ability to

get money from get money from banksbanks

DisadvantagesDisadvantages– Unlimited liability– Conflicts with

partners– Harder to manage?

CorporationsCorporationsA company owned by stockholdersA company owned by stockholdersA legal “person” in the eyes of the A legal “person” in the eyes of the lawlawOwnership (stockholders) separate Ownership (stockholders) separate from management (the president, from management (the president, etc.)etc.)Each stockholder has limited liability Each stockholder has limited liability (up to the value of your stock (up to the value of your stock investment)investment)

Structure of a CorporationStructure of a Corporation

Stockholders

Board of Directors

President or Chief Executive Officers (CEO)

Mangers / Workers

CorporationsCorporationsAdvantagesAdvantages– Limited liability for Limited liability for

stockholdersstockholders– Easy to raise moneyEasy to raise money

StocksStocks

BondsBonds

– Many people share Many people share the wealththe wealth

DisadvantagesDisadvantages– Difficult and Difficult and

expensive to startexpensive to start– Double taxationDouble taxation– Hard to controlHard to control– More regulationMore regulation