Business Organizations Chevalier Spring 2015
Sole Proprietorships A business owned and run by one person Most numerous and profitable of three business types we’ll be talking about Smallest in size; earn about 1/6 of the net income earned by all businesses
Sole Proprietorships Almost no start-up costs except for a license Can be ran out of your house, over the internet, or from an office
Sole Proprietorship Advantages Disadvantages Ease of start up Ease of management Don’t have to share profits No separate business income taxes Psychological satisfaction Ease of getting out of business Owner has UNLIMITED LIABILITY Difficulty in raising financial capital (debt, loans) Size and efficiency (employees and inventory vs. limited capital) Limited managerial experience Difficulty of attracting qualified employees LIMITED LIFE
Partnership A business jointly owned by two or more persons Least numerous in terms of numbers of firms General partnership vs. limited partnership (active in daily running)
Partnership Relatively easy to start Lawyers have to get involved Profits Debts Death of one partner End of partnership
Partnerships Advantages Disadvantages Ease of establishment Ease of management (different talents) Lack of special taxes Easier to attract financial capital because of size) Larger size Easier to attract talented employees (offer specialized services) Each partner is fully responsible for acts of all partners Limited partners only lose initial investment; rest of outstanding debt falls to other owner(s) Potential conflict between partners
Corporations Very formal and legal arrangement People who want to incorporate must ask permission from the government. If approved, a CHARTER is granted Gov’t. document granting permission Specifies number of shares of stock that can be sold Sold to stockholders, or shareholders, can lead to dividends
Corporations Advantages Disadvantages Ease of raising financial capital (sell stock, bonds (principal and interest)) Directors of a corp. can hire managers to run the firm Limited liability to owners Unlimited life Ownership can change easily Difficulty and expense of getting a charter Owners have little say after they have voted for board of directors Must keep detailed records/treated as a person; a separate entity Heavy government regulation