TYPES OF BUSINESS OWNERSHIPCHAPTER 6.1

Introduction to Business and Marketing

THE MAIN IDEA

Sole proprietorships, partnerships, and

corporations are the most common

forms of business organization.

Cooperatives, nonprofits, and

franchises are other forms.

ORGANIZING A BUSINESS The three main types of business

organizations are:

SoleProprietorships

Partnerships Corporations

TYPES OF BUSINESS OWNERSHIP

FIGURE 6.1

U.S. Sole Proprietorships, Partnerships, and Corporations

Total Number of Businesses(72%) Sole Pro-

prietorship(20%) Corporations(5%) Partnerships(3%) Other

Amount of Revenue Generated by Each Kind

of Business(5%) Sole Proprietorship(85%) Corpora-tion(8%) PartnershipOther

SOLE PROPRIETORSHIP

About 3/4 of all businesses in the United States are sole proprietorships.

sole proprietorshipa business owned by one person

SOLE PROPRIETORSHIP

Easy to start Owner keeps all

the profit Owner has total

control Taxes are lower

than a corporation

Unlimited liability Limited access to

credit Owner may not

have the necessary skills

Many run out of money

Business dissolves when owner dies

Advantages Disadvantages

PARTNERSHIP

To start a partnership you must have a partnership agreement

partnershipa business owned by two or more people who share its risks and rewards

PARTNERSHIP

Easy to start Easier to get capital Easier to obtain

credit Not dependent on

one person Only taxed once Diversity of skills

Business risk is shared among all partners

Unlimited legal and financial liability is shared

If one member makes a mistake all are responsible

Advantages Disadvantages

CORPORATIONS

To form a corporation, the owners must get a corporate charter from the state where their main office will be locatedcorporation

a company that is registered by a state and operates apart from its owners

CORPORATIONS

One of the major advantages of a corporation is limited liabilitylimited liability

holds a firm’s owners responsible for no more than the capital that they have invested in it

CORPORATION

Limited Liability Ability to raise

money by selling stock

Business does not end when an owner dies

Double taxation Income Stock holder

dividends

More government regulation

Difficult and costly to start

Advantages Disadvantages

OTHER WAYS TO ORGANIZE A BUSINESS

Other ways to organize a business include:

CooperativeNonprofit

OrganizationFranchise

COOPERATIVE

The purpose of a cooperative is to save money on the purchase of certain goods and servicescooperativean organization that is owned and operated by its members

NONPROFIT ORGANIZATION A nonprofit

organization does not pay taxes because it does not make a profit

nonprofit organizationa type of business that focuses on providing a service, not making a profit

FRANCHISE

The run a franchise, you have to invest money and pay franchise fees or a share of the profitsfranchisea contractual agreement to use the name and sell the products or services of a company in a designated geographic area