Forms of Business Organization (sole proprietorship, partnership, and corporation)

TraditionalCommandMarket What to produce?TraditionGov’t How to produce?TraditionGov’t Who gets the item?TraditionGov’t

TraditionalCommandMarket What to produce?TraditionGov’tWhat the consumer will buy / Profit How to produce?TraditionGov’t Who gets the item?TraditionGov’t

TraditionalCommandMarket What to produce?TraditionGov’t What the consumer will buy / Profit How to produce?TraditionGov’tCheapest way Who gets the item?TraditionGov’t

TraditionalCommandMarket What to produce?TraditionGov’t What the consumer will buy / Profit How to produce?TraditionGov’t Cheapest way Who gets the item?TraditionGov’tConsumer with money

What is Business Organization A way to organize your business so that: –The business is easy to run –You can come up with money to run the company –You reduce your legal liability (responsibility) –Fits your “style”

Sole Proprietorship One Owner Most popular in the United States

Sole Proprietorship Advantages –Easy to start / stop –You get all of the profits –You have full control Disadvantages –Unlimited personal liability –Limited access to money from banks –Lack of permanence

Partnership Owned by two or more people Various forms of partnerships – general (all share equally) –Limited (one has unlimited liability, the others do not) –Limited Liability Partnerships (LLP) (all partners have limited liability) (all partners have limited liability)

Partnerships Advantages –Easy to start –Shared decision making –Greater ability to get money from banks Disadvantages –Unlimited liability –Conflicts with partners –Harder to manage?

Corporations A company owned by stockholders A legal “person” in the eyes of the law Ownership (stockholders) separate from management (the president, etc.) Each stockholder has limited liability (up to the value of your stock investment)

Structure of a Corporation

Corporations Advantages –Limited liability for stockholders –Easy to raise money StocksBonds –Many people share the wealth Disadvantages –Difficult and expensive to start –Double taxation –Hard to control –More regulation