Sole proprietorships are the smallest form of business, and they are owned and operated by one person. Sole proprietorships are easy to start because they have almost no requirements except for occasional business licenses and fees. Advantages include: easy to start, relatively simple to manage, keep all the profits, no separate business income taxes, satisfaction of owning a business, and easy to end. Disadvantages include: unlimited liability, difficult to raise financial capital, inefficiency if enough personnel are not hired or enough inventory stocked, possibly limited managerial experience, difficulty attracting qualified employees, and limited life. Sole Proprietorships

Partnerships are owned by two or more people. Partnerships may be general or limited. Partnerships are easy to start; start-up usually consists of drawing up papers to specify the arrangement between the partners. Advantages of partnerships include: easy to start, easy to manage, lack of special taxes, financial capital attracted more easily than proprietorships, and operations are more efficient due to slightly larger size. Disadvantages of general partnerships include: each partner is fully responsible for the acts of all other partners, limited partners may lose their initial investment if the business fails, limited life, and the potential for conflict between partners. Partnerships

Corporations are recognized as separate legal entities with all the rights of an individual. Corporations file for permission to form from the national or state government, which grants a charter specifying the number of shares of stock that may be sold. Stock may be common or preferred. Advantages of corporations include: ease of raising financial capital, limited liability for owners, directors can hire professional managers to run the company, unlimited life, and ease of transfer of ownership. Disadvantages of corporations include: double taxation, difficulty and expense of getting a charter, shareholders (owners) have little say in how the business is run, and more government regulation. Corporations

In a franchise, the franchisee rents or leases the name, business profile, and way of doing business from the owner, or franchisor. Advantages to the franchisee include national advertising, instant access to a successful product line, and professional advice when needed. Advantages to the franchisor include the ability to expand the business without excess financial risk or liabilities, the income brought in by the initial franchise payment and monthly royalty fees, and a franchisee who is highly motivated to make the franchise work. Franchises

An income statement is a report that shows a business’s sales, expenses, net income, and cash flow for a period of time. Depreciation is a noncash charge for the general wear and tear on capital goods. A company’s cash flow is a comprehensive measure of its profits because it represents the total amount of after-tax income generated by the company operations. Reinvesting cash flow into a business allows the business to produce new or additional products, which may generate additional sales and even larger cash flow. Growth Through Reinvestment

Merging is a combination of two or more businesses to form a single firm. The two types of mergers are horizontal and vertical mergers. Reasons for merging include faster growth, synergy, economies of scale, diversification, elimination of rivals, or changing or losing a corporate identity that is associated with errors or problems. Conglomerates are firms that have at least four businesses that make unrelated products, none of which is responsible for a majority of sales. Multinational corporations can move resources, goods, services, and financial capital across national borders. Growth Through Mergers

Start-up incubators are places within states and universities where potential entrepreneurs can get training in accounting, engineering, and managerial skills, as well as potential financing. Venture capitalists lend investment funds to new or unproven businesses in exchange for a share of ownership (equity). Angel investors are people who lend start-up money informally and are typically more interested in helping the individual survive than in getting a substantial return on their investment. Crowdfunding, or crowdsourcing, involves using social networking to appeal to potential investors. Entrepreneurial Funding for Start-Ups

Nonprofit organizations promote the collective interests of their members instead of seeking financial gain for the owners. Community organizations such as schools, churches, hospitals, welfare groups, and adoption agencies are often legally incorporated to take advantage of unlimited life and limited liability. Three types of cooperatives are consumer, service, and producer cooperatives. Community Organizations and Cooperatives

Labor unions are nonprofit organizations that represent member interests in various employment matters. Professional associations consist of people in a specialized occupation who are interested in improving working conditions, skills, and public perceptions of the profession. Business associations are formed to promote the collective interests of the businesses. Labor, Professional, and Business Organizations

Local, state, and national governments function as nonprofit organizations. Government can play a direct or indirect role in the economy. Agencies that produce and distribute goods and services play a direct role. Indirect government actions include antitrust laws, college scholarships, and Social Security payments. Government