Unit 4 Microeconomics:Business and Labor

Chapters 8.1

EconomicsMr. Biggs

Business organization - An establishment formed to carry on commercial enterprise.

The Role of Sole ProprietorshipsSole proprietorship - A business owned and managed by a single individual.75% of businesses are sole proprietorships.For example, barber shops and small engine repair shops.

Advantages of Sole ProprietorshipsSole proprietorships are simple to establish and offer the owner numerous advantages. 

Sole Proprietorships

Ease of Start -UpWith just a little paper work, anyone can start a sole proprietorship by:

• Obtaining a business license.Business license - Authorization to start a business issued by local government.

• Obtaining a site permit, which is a certificate of occupancy to use another building for business other than your own home.

• Registering a new fictitious business name if the proprietor is not using his or her name as the name of the business.

Relatively Few RegulationsSole proprietorships are the least regulated and cheapest type of business to start up.Zoning laws - Laws in cities or towns that designate separate areas for residency and for businesses.

Sole Receiver of ProfitThe owner gets to keep all the profits after paying taxes.

Full ControlThe owner can run their business as they wish and can respond quickly to market opportunities.

Easy to DiscontinueAfter paying debits, the owner can stop operations easily.

Disadvantages of Sole ProprietorshipThe independence of a sole proprietorship comes with a high degree of responsibility.

Unlimited Personal ResponsibilityThe sole proprietor is personally liable to pay debts related to the business.Liability - The legal obligation to pay debts.If the business fails, a sole proprietor may have to sell his house or other assets to pay the debt. 

Limited Access to ResourcesBanks may not lend money for expansion. You may not be strong in all areas of running a business. For example, the owner may be a better salesman than bookkeeper.

Lack of PermanenceThe business has a limited life and may die with you.It is difficult to find and keep good employees without paying for fringe benefits.Fringe benefits - Payments other than wages, such as insurance, vacations, retirement.Lack of experienced employees can hurt a business.

The End