1. Business Organizations
1. Sole Proprietorship - A business owned and operated by one person.
Oldest, simplest, most common type
Who owns SP’s? (Internet advantages)
Advantages of Sole Proprietorships:
Ease of start up
Few regulations
Full control
Exclusive right to all profits

2. Sole Proprietorships 1. Easy Start Up— 2. Few Regulations
Require small amount of money
Can set up in a short amount of time
2. Few Regulations
Business License
Site Permit (zoning laws)
Register business name
Obtain federal/state tax ID

3. Sole Proprietorships
3. Full Control - You maintain complete control and can make fast and flexible decisions.
Minimal paperwork, meetings, depends on YOU!
4. Profit - The owner (YOU) keeps all the profits.

4. Sole Proprietorships Disadvantages: Unlimited Personal Liability
Limited Access to Resources
Lack of Permanence

5. Disadvantages of S.P. Unlimited Liability –
YOU are personally responsible for all business debts.
YOU can also be sued personally for anything if the business is taken to court.

6. Disadvantages – Sole Proprietorships
2. Limited Access to Resources
- Sole responsibility - YOU are responsible for ALL aspects of running your business. But are you an expert at all aspects of running a business?
- Limited Growth Potential – Difficult to expand or improve the business because banks are reluctant to give loans.
Collateral—Anything of value you pledge as security for a loan.

7. Disadvantages of SP
4. Lack of Longevity - The length of a firm’s life or the amount of time the business operates.
Ex. Your health / lifespan
Ex. High turnover
Ex. You lose interest in the business
Ex. Your competence

8. Partnerships
Partnership—A business that is owned and controlled by two or more people.
Ex. Small retail stores, restaurants, doctors, lawyers
General—Partners enjoy equal decision making authority.
Limited—Partners who provide capital($) but do not play an active role in running the company. Liability is limited between partners.
Limited Liability Partnership – similar to general except partners not responsible for each other’s mistakes (limited liability between partners)

9. Advantages of Partnerships
Ease of start-up
Financial Advantages
Specialization / Shared decision making

10. Advantages of Partnerships
1. Easy start up
Few government regulations
Costs tend to be low
Partners usually develop a partnership contract but not required. Can distribute profits and responsibilities by choice.

11. Advantages of Partnerships
2. Financial Advantages
Shared Assets: Partners can pool assets to start the business or make capital purchases.
Improved ability to raise capital – Banks are more likely to lend to partnerships because they have an increased amount of collateral.
Shared Losses - The sharing of losses may enable a partnership to survive a situation that might cause a sole proprietorship to fail.

12. Partnerships - Advantages
3. Shared Decision Making
Specialization— Specific business duties can be assigned to different partners based on expertise and individual talents.
Ex. One good in sales—other good in accounting
Minimize mistakes - Partners can minimize mistakes by consulting with each other.
Flexibility – Can go on vacation, illness

13. Disadvantages of Partnerships
1. Unlimited Liability - Each partner is personally responsible for debts incurred by the business. General partners can lose everything they own!
If one partner refuses or is unable to pay for his share, then the other partners are still liable for the total debt.
Other partners can lose based on the mistakes of one

14. Disadvantages of Partnerships
2. Potential Conflicts – Official partnership agreements deal with ownership percentages and technicalities such as profit and loss.
However, other factors play an even bigger role…
Work habits, personalities, management styles, ethics, etc…

15. Disadvantages of Partnerships
3. Lack of Permanence - Life of the business is dependent on the willingness and ability of the partners to continue to work together.
One partner cannot remain (die/illness) or decides that they no longer want to work in the partnership. What are the options?
Find a new partner, buy the partner out, or close the business.

16. Franchises
Franchise - A semi-independent business that pays fees to a parent company. In return, the business is granted the exclusive right to sell a certain product or service in a given area.
Examples: Subway, Jiffy Lube, McDonalds, Palm Beach Tan, Home Again Senior Care

17. Franchise Advantages Advantages Management training and support
Standardized quality
National advertising programs
Financial assistance
Centralized buying power

18. Franchise Disadvantages
High franchising fees and royalties
Strict operating standards
Purchasing restrictions
Limited product line

19. Corporations
Corporations— Companies that are formed as legally distinct from their owners and are treated as if they were individuals.
Can: Hire workers, make contracts, pay taxes, sue and be sued, make & sell products.

20. Forming a Corporation
1. Must apply for a state license known as the: articles of incorporation.
Includes: name and purpose of corp.
Address and headquarters
Amount of $ it expects to raise
Names and addresses of officers
Length of time expected to exist
License granted is called: corporate charter

21. Corporate Structure Structure: Owners/Shareholders Board of Directors
Corporate Officers
Vice Presidents
Department Heads
Employees

22. Corporate Finances Stock— A certificate of ownership of the firm.
Stockholders – Individuals that own shares
Shares - Portions of stock (certificates) issued.
Dividends - Profits paid to shareholders.
Common Stock - Allowed to vote. May or may not offer dividends
Preferred Stock - Guaranteed dividends; paid before common stock. No voting rights

23. Corporate Finances
Corporate Bond—Certificate issued by a corporation in exchange for money borrowed.
Principal—The actual amount of money borrowed. Ex. Buy interest
Principal=$10,000 X 5%= $500 per year income
Interest—Amount borrower must pay for the use of the principal.

24. Advantages of Corporations
Advantages to stockholders
1. Limited Liability – Can lose only the amount they invested in the business. No personal assets can be touched.
2. Transferable - Can sell their shares at any time

25. Advantages of Corporations
Advantages for the Corporation:
1. Capital can be raised easily (bonds, issuing shares)
2. Separation of ownership from management.
- Owners need no skills. Can hire experts.
3. Longevity
– Businesses can live indefinitely since ownership is transferable and owners are not running day to day operations.

26. Disadvantages of Corporations
Difficulty and expense of startup-
Corporate charters involve a complicated legal process
Double Taxation
Corporation pays taxes
on profits
Corporation pays
stockholders dividends
Stockholders pay income
tax on dividends

27. Disadvantages of Corporations
3. Loss of control / Slow decision making process
- Owners have little control of decision making. Corporate officers (management) and/or Board of Directors may make decisions in their own self-interest that do not benefit owners.
- Major corporate decisions are delayed by the voting process and meeting times of the Board of Directors

28. Disadvantages of Corporations
4. Government Regulations
Have far more and stricter laws
Example – Must file quarterly and annual earnings reports to the SEC (Securities and Exchange Commission)

29. Limited Liability Corporation LLC
Advantages
Limited Liability
No Double Taxation
Disadvantages
Almost none
Most popular form of small businesses now