1. Under a Capitalist Economic System
Types of Businesses
Under a Capitalist Economic System
Unit 3
Lesson 1

2. Basic Information for Businesses
In the United States, there are over 20 million businesses.
Individuals are free to start any type of business they wish if they have the money.
Individuals can get money from different ways, like:
Loans from the bank
Government grants
Investors that invest (put in) money
Family/friends

3. Three Basic Types of Businesses
Sole Proprietorship
Partnership
Corporation

4. Sole Proprietorship
A sole proprietorship is a business owned by one person.
Under this type of business there can be many employees or only a few; it depends on what is needed.
About 73% of the businesses in the US are sole proprietorships BUT they only account for 16% of all sales of goods and services.
What do you think this means?

5. Sole Proprietorship
As a single owner or sole proprietorship you would have unlimited liability.
Unlimited liability means that the owner of the business holds all the responsibility; any debts are their responsibility or problem.
A sole proprietorship is risky because they can lose not just the company’s money but their own money and property if the business fails.

6. Partnership
A partnership is a business owned by two or more people (partners) who share the tasks of running the business.
Usually a contract, a legal written document, where it is written how the business shall be split between the partners and rules to run the business.
All partners must sign the contract to make it legal and binding, holds all who sign responsible and tied to the contract and the business.
All partners are agreeing to follow the rules included in the contract and to shoulder the responsibilities for whatever happens to the business when they sign the contract.

7. Partnership
Each partner usually agrees to supply some of the capital, money needed to set up and operate the business.
The partners will also decided how to split their profits.
In a partnership, the contract will have a section to help deal with the issue of what happens to the business if one of the partners should pass away or wants to leave.
Just like in a sole proprietorship, a partnership puts their own personal money and property on the line.
If something happens to the business, all the partners could lose their personal property and personal income.

8. Corporation
A corporation is a business owned by more than one person BUT is set up different than a partnership.
To be a corporation the owners must get permission from the state.
The state will then issue a charter, an official document that outlines how the business will be organized, defines rights and privileges.
Once a charter is issued the business can now be seen as a corporation.

9. Corporation
The corporation can then borrow money, make contracts, buy and sell property.
Corporations make up 89% of all products and services sold in the US.
With a corporation, owners have limited liability, this means that if something were to happen to the business, those involved in the business will not have their personal property or personal income taken.
If anything goes wrong the people who invested with the corporation will only lose the money they put into the business.
All of this is written into the charter when they make the business into a corporation and protected by law.

10. Corporation
To raise money, corporations will sell small shares, small pieces of the company, to people through the stock market.
Each person who buys a share is called a stockholder and receives a stock certificate, a piece of paper that lists the buyers name, the number of stocks bought and is proof to them buying the stock.
If the corporation is successful and makes money, then the stockholders and the owners, share in the profits.
Corporations are the only type of business that can sell stocks publicly.

11. Type of Business Advantages Disadvantages
Sole Proprietorship
(73% of total)
Easy to organize
Owner received all proceeds after taxes
Own boss
Limited money to improve and expand
No one to share losses with
Unlimited liability
Must be good at managing, selling and producing
Partnership
(7% of total)
Easy to organize but needs a contract
Can share risks
Easier to borrow money
More skills
Profits must be shared
Losses shared-one partner may have more to lose
Hard to dissolve if only one partner leaves
Corporation
(20% of total)
Very easy to borrow money
Lose only money invested (limited liability)
Easy to sell ownership by selling stocks
Accounts for 89% of all sales
Extra taxes to pay
More government rules
Special rules for buying and selling stocks
Little owner control with many stockholders