Types of Business Types of Business OrganizationsOrganizations

Econ 3Econ 3

11/16/0911/16/09

Sole ProprietorshipSole Proprietorship

A business run by one A business run by one personperson

Smallest type of business Smallest type of business organization in terms of the organization in terms of the actual size of the businessactual size of the business

It is the most numerous and It is the most numerous and the most profitablethe most profitable

Sole ProprietorshipSole Proprietorship

AdvantagesAdvantages Easy to start upEasy to start up Easy to manageEasy to manage Owner get’s all the profitsOwner get’s all the profits Business pays no income tax-tax’s are Business pays no income tax-tax’s are

on owner’s personal incomeon owner’s personal income Satisfaction of owning one’s businessSatisfaction of owning one’s business Easy to close businessEasy to close business

Sole ProprietorshipSole Proprietorship

DisadvantagesDisadvantages

Owner has unlimited liabilityOwner has unlimited liability Hard to raise financial capitalHard to raise financial capital Owner may not be able to hire Owner may not be able to hire enough personnel or stock enough personnel or stock enough to operate efficientlyenough to operate efficiently

Sole ProprietorshipSole Proprietorship

DisadvantagesDisadvantages Owner may have limited managerial Owner may have limited managerial

experienceexperience Hard to attract qualified employeesHard to attract qualified employees Business has limited life; ceases to Business has limited life; ceases to

exist after owner dies without a exist after owner dies without a prior legal planprior legal plan

PartnershipsPartnerships

A business jointly owned by two or A business jointly owned by two or more personsmore persons

Least numerous among business Least numerous among business organizations organizations

Second smallest proportion of sales Second smallest proportion of sales and net incomeand net income

PartnershipsPartnerships

General partnerships are a type of General partnerships are a type of business in which all partners are business in which all partners are involved in the management and involved in the management and financesfinances

In a limited partnership, at least one In a limited partnership, at least one partner is not involved in partner is not involved in management. Usually that partner management. Usually that partner may have helped finance the businessmay have helped finance the business

PartnershipsPartnerships

Articles of Partnership-a document Articles of Partnership-a document that spell out how the partners divide that spell out how the partners divide the profits and lossesthe profits and losses

PartnershipsPartnerships

AdvantagesAdvantages Ease of start upEase of start up Ease of managementEase of management No special taxes on a partnershipNo special taxes on a partnership Easier to raise capital thru bank loans or Easier to raise capital thru bank loans or

new partnernew partner Larger size aids more efficient operationLarger size aids more efficient operation Easier to attract employees Easier to attract employees

PartnershipsPartnerships

DisadvantagesDisadvantages Partners are responsible for acts of each Partners are responsible for acts of each

otherother Limited life-partnership ends if partner Limited life-partnership ends if partner

leavesleaves Potential for partner conflictsPotential for partner conflicts

CorporationsCorporations

A business organization recognized A business organization recognized by law as a separate legal entity with by law as a separate legal entity with all the rights of an individualall the rights of an individual

Corporations receive a charter, or Corporations receive a charter, or government permission to create a government permission to create a corporations which includes details corporations which includes details about stock ownershipabout stock ownership

CorporationsCorporations

Investors who buy common or Investors who buy common or preferred stock in a corporation preferred stock in a corporation become owners of the firmbecome owners of the firm

When you buy stock, you technically When you buy stock, you technically buy partial ownership of that buy partial ownership of that businessbusiness

CorporationsCorporations

AdvantagesAdvantages Ease of raising capitalEase of raising capital Professionals run the firm instead of Professionals run the firm instead of

owners(shareholders)owners(shareholders) Owners have limited liabilityOwners have limited liability Business life is unlimitedBusiness life is unlimited Easy to transfer ownershipEasy to transfer ownership

CorporationsCorporations

DisadvantagesDisadvantages Charter is expensiveCharter is expensive Ownership and management are Ownership and management are

separated so shareholders have little separated so shareholders have little say in running the businesssay in running the business

Corporate income is taxed twiceCorporate income is taxed twice Subject to government regulationSubject to government regulation