Business Organizations

Business Organization Business is a profit-seeking enterprise that produces goods or services or carries on commercial enterprise.

Sole Proprietorship Most common form - most numerous A single owner-controlled business Easy to form; easy to end business Doesn’t share profit, doesn’t pay special tax Sense of personal freedom 75% of all businesses

Disadvantages of Sole Proprietorship Has unlimited liability Difficulty raising capital Limited life Inefficiency Limited managerial experience

Partnership- jointly owned by two or more persons Limited Partnership: no active role in running business – limits liability General Partnership: all partners responsible for management and financial obligations Limited Liability Partnership: all partners are limited partners

Partnerships Strengths Easy to start Lack of special taxes Easier to attract financial capital than a sole proprietorship Shared decision making

Partnerships Weaknesses Liability for other partner as well as personal liability Limited life Potential for conflict

Corporation – separate legal entity Artificial person Files charter to form Sells stock Ownership divided to shareholders or stockholders Pays dividend Two types of stock common stock preferred stock

Types of Corporations Closely Held Corporations: also known as privately held corporations. Stock is issued to only a few people, often family members Publicly Held Corporations: Many shareholders who can buy and sell stock on the open market

Corporation Strengths Ease of raising financial capital Hire professional to run corporation Limited liability Unlimited life Ease of transferring ownership 90% of sales

Corporation Weaknesses Difficult to start Shareholders have little say in how business is run Must pay special tax (taxed twice) More government regulation