1. Business Organizations Chapter 8

2. Types

3. Sole Proprietorship A business owned and run by one person. Forming a Proprietorship only requires licenses and fees. You are ready for business as soon as operations are setup. Can be run almost anywhere.

4. Sole Proprietorships Advantages –Easy to start up –Easy to manage –Owner enjoys all profit w/o sharing it with other owners

5. Sole Proprietorships Advantages (Cont.) –Psychological satisfaction of being one’s own boss –Easy to leave the business

6. Sole Proprietorships Disadvantages –Owner has unlimited liability –Difficulty in raising financial capital to start business –Small size and efficiency problems

7. Sole Proprietorships Disadvantages (Cont.) –Owner often has limited managerial experience –Difficulty in attracting qualified employees

8. Sole Proprietorships Disadvantages (Cont.) –Limited life of business If owner quits, dies, or sells the business

9. Partnership A business jointly owned by two or more persons. Types of Partnerships General Partnership- All partners are responsible for the management and financial obligations of the business -

10. Partnerships Limited Partnership- At least one partner is not active in the daily running of the business.

11. Partnerships Formation Easy like a proprietorship Articles of partnership States how profit (or loss) will be divided.

12. Partnership Advantages –Easy to establish –Easy to manage –Lack of special taxes –Easier to attract capital than a proprietorship

13. Partnership Advantages –Since they are bigger they are more efficient –Easier to attract top talent into their organization

14. Partnership Disadvantages –Each partner is fully responsible for the acts of all partners –Has limited life

15. Partnership Disadvantages (Cont.) –Potential conflict between the partners –Financial problems may cause both the business and partners to file for bankruptcy

16. Corporation A form of business organization recognized by law as a separate legal entity having all the rights of an individual.

17. What does this mean? A corporation can buy or sell property, enter into legal contracts, and may be sued. The stockholders are the owners of a corporation.

18. Formation Very formal and legal arrangement Must request permission from the state or federal government.

20. Corporation Advantages –Easy to raise capital (usually done by issuing bonds) –Hire professional managers to run the firm

21. Corporation Advantages (cont.) –Provides limited liability for its owners (stockholders) –Unlimited life (corporation goes on even as ownership changes)

22. Corporation Advantages (cont.) –Easy to transfer ownership (simply sells stock)

23. Corporation Disadvantages –Difficult and expensive to obtain a charter –Shareholders have little input in how the business is run

24. Corporation Disadvantages (cont.) –Double taxation of profits dividends are taxed as corporate profit and as personal income for the shareholder

25. Corporation Disadvantages (cont.) –They are subject to more governmental control than other forms of business

26. Stock- share of ownership in a corporation that entitles the buyer to a certain part of future profits of a corporation. Dividend- profits paid to its stockholders

27. Franchise- A contract in which a franchiser sells to another business the right to use its name and sell its products, they train you etc. The person or business buying these rights, called the franchisee, pays a fee that may include a percentage of all money taken in.