1. Chapter 3 Section 1 Forms of Business Organization

2. Proprietorship/Sole Proprietorship  Small, easy-to-manage business that one person owns and runs  MOST COMMON KIND OF BUSINESS  ADVANTAGES  Easy to start  Decisions can be made quickly  Owner does not share profits with partners  Owner pays income taxes, but does not have to pay business income taxes  Enjoy being their own boss  Easy to get out of the business, if proprietor chooses to

3. Proprietorship/Sole Proprietorship  DISADVANTAGES  Unlimited liability- proprietor is solely responsible for all the business’s losses and debts  Financial capital-money needed to start-up the business- is sometime hard to raise  May result in owner not being able to afford a minimum inventory  May not be able to afford to pay enough workers  Owner may not have experience in managing a business  may have trouble hiring good workers  A proprietorship has limited life-business stops when owner dies or leaves the business

4. Partnership  Business owned by two or more people  General partnership -all work to manage business  Limited partnership -at least one partner does not take part in running the business  “silent partner”  Legal papers are usually written to describe the responsibilities of the different partners and describe how the profits will be divided

5. Partnership  ADVANTAGES  Easy to start  Easy to manage-different partners usually have different strengths  No special taxes on a partnership  May operate more smoothly than a proprietorship-benefit from each other skills  Partnerships often find it easier to attract talented workers than proprietorships

6. Partnerships  DISAVANTAGES  General partnership- each partner responsible for what the other partners do  Limited life  Partners may not always agree  *** In case of bankruptcy in a limited partnership, a limited partner cannot lose more than initially invested  In case of bankruptcy the “unlimited” partners usually have to pay a much larger share of the business’s debts

7. Corporations  Business organization made up of a number of people, but can act as a single person  Must have permissions from the government in the form of CHARTER to form a corporation  Once the charter has been granted, shares of stock can be sold  If you buy stock in a company, you are a stockholder or shareholder  Stockholders own the corporation and choose a board of directors to run it  They earn dividends or a share of the money earn by the company

8. Corporations continued  There are 2 types of stocks  COMMON STOCK-owners elect the board of directors  1 vote for each share owned  PREFERRED STOCK-do not get to vote for directors, but if corporation goes out of business these stockholders get the leftover money before owner of common stock

9. Corporation continued  ADVANTAGES  Usually easier to get money to run its business  Can borrow money by selling bonds  The corporation pays interest to the people who buy the bonds and agree to repay the principal that was borrowed at a later date  Directors hire professional managers to run the company  Shareholders have limited liability-not responsible corps actions or debts  Corps continue to function even if owners die or sell their share of stock  Easy to transfer ownership because shareholders can sell shares of stock to anyone

10. Corporations continued  DISADVANTAGES  Difficult and expensive to get a charter  Owner/shareholders have little power to affect the company  Profits are taxed twice-once on the corporation itself and again by shareholder when they receive their dividends  More government rules for corporations than other forms of businesses

11. Government and Business Regulations  In the beginning many states limited the powers of corporations  By late 1800s, state courts had realized the importance of the businesses and relaxed control over them  By 20 th century the consumers wanted the states to control corporations  They regulated banks, insurance companies, and public works companies—telephone and transportation services  Today, states are once again relaxing control in order to promote competition among them