BUSINESS ORGANIZATIONS

SOLE PROPRIETORSHIPS What is the most common form of business? Sole Proprietorship, which is a business run by one person; smallest in size; few requirements; usually smaller businesses What is an example of sole proprietorship at the most basic level? THE GOOD STUFF: They are easy to start; easy decision making (don’t have to consult higher management); owner gets profit (and losses); don’t have to pay separate business income taxes, only individual income taxes on the business; your name in lights; personal satisfaction; easy to get out THE BAD STUFF: unlimited liability – personal wealth can be taken away; start up costs – financial capital (banks don’t like it); limited capital can make it hard to keep inventory and employees; inexperienced owners; finding quality employees (it’s a gamble); limited life – the business legally dies when the owner dies

PARTNERSHIPS – JOINTLY OWNED Partners are responsible for management and finances Limited partnership – a partner might have contributed financial capital but not actively run the business All owners responsible for personal and business debt (get a good contract) THE GOOD STUFF – easy to establish; easy to manage; only pay individual taxes on profits at the end of the year, not separately on the business; easier to get financial capital than proprietorships; bigger= ease of bank loan; easier to get talented employees THE BAD STUFF – responsible for other partners’ actions (be careful who you partner with); if someone dies, partnership must be dissolved and reorganized; partners can’t get along; bankruptcy = limited partners are out, you are stuck with the debt *limited partners only lose their investment, not responsible for the debt

CORPORATIONS Few in number, large in sales Recognized as a separate entity (like a person) can sell property, enter contracts, and can be sued Very formal; must get permission from the federal or state gov. and a charter must be granted with will include company, address, purpose etc. Has stockholders; money will be used to set up the corporation; profits = issue a dividend (payments to stockholders)

CORPORATIONS Purchase stock = you are an owner; common stock – you get a vote and elect a board of directors preferred stock – you get no vote but if the business fails, you get your money back first Majority stockholder can control company and choose board members; may choose themselves or family members

CORPORATION ADVANTAGES Easy financial capital; need more money = sell more stock; write bonds – promises to repay principal + interest Professional managers run it. Limited liability for owners; the corporation is responsible for debts, not owners (attractive to business owners) Doesn’t die with the owners Easy to transfer ownership- you can just sell your stock

CORPORATION DISADVANTAGES Hard to get a charter Owners have little say so; board of directors do it Double the taxes – Taxes of the corporation and personal taxes; must provide detailed records of sales and expenses so that it can pay taxes on profits More government regulation – must register with the state; must register with the SEC (Securities and Exchange Commission) Must provide data about sales and profit to the public

REGULATION Competition, free markets part of the U.S. economy Late 1800s, government interventions; varies from state to state Regulation giant corporations; set insurance companies’ rates, licensing exams, protect consumers Regulate banks, insurance companies, gas companies, television service, electricity; few regulations recently to promote competition States try to attract new business; advertise on tv; states issue bonds and help finance industry; reduce taxes to attract business