1. Types of Business Organizations Econ 3 11/16/09

2. Sole Proprietorship A business run by one person A business run by one person Smallest type of business organization in terms of the actual size of the business Smallest type of business organization in terms of the actual size of the business It is the most numerous and the most profitable It is the most numerous and the most profitable

3. Sole Proprietorship Advantages Advantages Easy to start up Easy to start up Easy to manage Easy to manage Owner get’s all the profits Owner get’s all the profits Business pays no income tax-tax’s are on owner’s personal income Business pays no income tax-tax’s are on owner’s personal income Satisfaction of owning one’s business Satisfaction of owning one’s business Easy to close business Easy to close business

4. Sole Proprietorship Disadvantages Disadvantages Owner has unlimited liability Owner has unlimited liability Hard to raise financial capital Hard to raise financial capital Owner may not be able to hire enough personnel or stock enough to operate efficiently Owner may not be able to hire enough personnel or stock enough to operate efficiently

5. Sole Proprietorship Disadvantages Disadvantages Owner may have limited managerial experience Owner may have limited managerial experience Hard to attract qualified employees Hard to attract qualified employees Business has limited life; ceases to exist after owner dies without a prior legal plan Business has limited life; ceases to exist after owner dies without a prior legal plan

6. Partnerships A business jointly owned by two or more persons A business jointly owned by two or more persons Least numerous among business organizations Least numerous among business organizations Second smallest proportion of sales and net income Second smallest proportion of sales and net income

7. Partnerships General partnerships are a type of business in which all partners are involved in the management and finances General partnerships are a type of business in which all partners are involved in the management and finances In a limited partnership, at least one partner is not involved in management. Usually that partner may have helped finance the business In a limited partnership, at least one partner is not involved in management. Usually that partner may have helped finance the business

8. Partnerships Articles of Partnership-a document that spell out how the partners divide the profits and losses Articles of Partnership-a document that spell out how the partners divide the profits and losses

9. Partnerships Advantages Advantages Ease of start up Ease of start up Ease of management Ease of management No special taxes on a partnership No special taxes on a partnership Easier to raise capital thru bank loans or new partner Easier to raise capital thru bank loans or new partner Larger size aids more efficient operation Larger size aids more efficient operation Easier to attract employees Easier to attract employees

10. Partnerships Disadvantages Disadvantages Partners are responsible for acts of each other Partners are responsible for acts of each other Limited life-partnership ends if partner leaves Limited life-partnership ends if partner leaves Potential for partner conflicts Potential for partner conflicts

11. Corporations A business organization recognized by law as a separate legal entity with all the rights of an individual A business organization recognized by law as a separate legal entity with all the rights of an individual Corporations receive a charter, or government permission to create a corporations which includes details about stock ownership Corporations receive a charter, or government permission to create a corporations which includes details about stock ownership

12. Corporations Investors who buy common or preferred stock in a corporation become owners of the firm Investors who buy common or preferred stock in a corporation become owners of the firm When you buy stock, you technically buy partial ownership of that business When you buy stock, you technically buy partial ownership of that business

13. Corporations Advantages Advantages Ease of raising capital Ease of raising capital Professionals run the firm instead of owners(shareholders) Professionals run the firm instead of owners(shareholders) Owners have limited liability Owners have limited liability Business life is unlimited Business life is unlimited Easy to transfer ownership Easy to transfer ownership

14. Corporations Disadvantages Disadvantages Charter is expensive Charter is expensive Ownership and management are separated so shareholders have little say in running the business Ownership and management are separated so shareholders have little say in running the business Corporate income is taxed twice Corporate income is taxed twice Subject to government regulation Subject to government regulation