Business Organizations Sole Proprietorships, Partnerships and Corporations

Legal Forms of Business Sole Proprietorship Partnerships Corporations Regular Corporation General Partnership Limited Partnership Limited Liability Partnership (LLP) Sub-Chapter S Corporation (S-Corporation)

Sole Proprietorship Business owned (and usually operated) by one individual Simplest form of business ownership Most popular form in the U.S. – about 75% total Most common in: - retail - service - agriculture

Sole Proprietorship Advantages Disadvantages Ease of start-up 2. Pride of ownership Retention of profits Easy to discontinue Unlimited Liability Limited life: business ends when owner leaves or dies Limited access to start-up capital and credit Difficulty in hiring and keeping quality employees

Partnerships Two or more owners Least numerous form – less than 8% of all businesses Fall into three categories: General - most common - partners share equally in responsibility and liability 2) Limited - only one partner is required to be a general partner (control but liability) Limited Liability - all partners are limited partners

Partnerships Advantages Disadvantages Ease of start-up Articles of partnership: document that lists each partners rights & responsibilities Greater access to capital & credit Limited govt. regulation Retention of profits More management expertise Shared profits Unlimited liability for “general partners” Limited life - business ends when any partner dies or withdraws 4. Conflict between partners

For Review 1. What is the simplest and most common form of business ownership in the U.S.? Answer: sole proprietorship 2. What are the advantages and disadvantages of a sole proprietorship? 3. What are the three categories of partnerships? Answers: general, limited and limited liability 4. What are the advantages and disadvantages of a partnership?

Corporations Defined as a legal entity, owned by individual stockholders, with each facing limited liability for the corporations debts Most complex of all business organizations - make up 20% of all U.S. businesses - accounts for 87% of all U.S. business income Owners are called “stockholders” or “shareholders” Governed by a “Board of Directors”

Types of Corporations Closely held (or “privately held”) corporation - only issue stock to a few people, usually family members - rarely trade their stock, but pass down from generation-to- generation Publicly held corporation - many shareholders who can buy or sell stock

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Corporations Advantages Disadvantages Limited liability Ease of ownership transfer Unlimited life Greater access to capital Specialized management expertise Expense and difficulty of start-up - requires a Corporate Charter Double taxation More government regulations Less control

Corporate Charter Also called a “certificate of Incorporation” Issued by the state where the corporation resides What does it include? Corporate name Statement of purpose Founder’s names and address HQ business address Method of fund-raising Corporate rules

Answers to the following questions can be found beginning on p Answers to the following questions can be found beginning on p.185 in your textbook. 1. What is a sole proprietorship? 2. Explain the characteristics of a partnership? 3. Do you think the advantages of partnerships outweigh the disadvantages? Why or why not? 4. How does a corporation differ from a sole proprietorship or partnership? 5. What is the difference between a closely held corporation and a publically held corporation? 6. Define the following terms: stock, bond and dividends. 7. Why must stockholders pay taxes on dividends?

Other Business Organizations Franchise: semi-independent business that pays fees to a parent company Business is granted the exclusive right to sell a certain product(s) or service in a given area

Franchise Advantages Disadvantages Management training & support Standardized quality National advertising program Financial assistance Centralized buying power Fees and royalties Strict operating standards Purchasing restrictions Limited product lines

Best Franchises to Own In 2016 Ranked by Entrepreneur Magazine Jimmy Johns Sandwich Shop Hampton Inn by Hilton Supercuts Servpro Subway

Cooperative Organizations Cooperative: business organization owned by a group of individuals for their shared benefit Fall into three categories: Consumer or purchasing - Sam’s Club Service - Credit Unions 3. Producer - agriculture

Nonprofit Organizations Function like a business, but do not operate for the purpose of generating profit. Benefit society Exempt from Income taxes Service related Ex: YMCA, American Red Cross, churches, hospitals

Professional Organizations: work to improve the image, working conditions, and skill levels of people in certain occupations NEA and AEA for teachers ABA for lawyers Business Associations: promote the collective interests of a similar group of businesses BBB or Better Business Bureau Chamber of Commerce Trade Associations: organizations that promote the interests of particular Industries Home Builders Association of Ala. Ala. Retail Association