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Published byLeon Sherman Modified over 9 years ago
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BUSINESS ORGANIZATIONS
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SOLE PROPRIETORSHIPS What is the most common form of business? Sole Proprietorship, which is a business run by one person; smallest in size; few requirements; usually smaller businesses What is an example of sole proprietorship at the most basic level? THE GOOD STUFF: They are easy to start; easy decision making (don’t have to consult higher management); owner gets profit (and losses); don’t have to pay separate business income taxes, only individual income taxes on the business; your name in lights; personal satisfaction; easy to get out THE BAD STUFF: unlimited liability – personal wealth can be taken away; start up costs – financial capital (banks don’t like it); limited capital can make it hard to keep inventory and employees; inexperienced owners; finding quality employees (it’s a gamble); limited life – the business legally dies when the owner dies
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PARTNERSHIPS – JOINTLY OWNED Partners are responsible for management and finances Limited partnership – a partner might have contributed financial capital but not actively run the business All owners responsible for personal and business debt (get a good contract) THE GOOD STUFF – easy to establish; easy to manage; only pay individual taxes on profits at the end of the year, not separately on the business; easier to get financial capital than proprietorships; bigger= ease of bank loan; easier to get talented employees THE BAD STUFF – responsible for other partners’ actions (be careful who you partner with); if someone dies, partnership must be dissolved and reorganized; partners can’t get along; bankruptcy = limited partners are out, you are stuck with the debt *limited partners only lose their investment, not responsible for the debt
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CORPORATIONS Few in number, large in sales Recognized as a separate entity (like a person) can sell property, enter contracts, and can be sued Very formal; must get permission from the federal or state gov. and a charter must be granted with will include company, address, purpose etc. Has stockholders; money will be used to set up the corporation; profits = issue a dividend (payments to stockholders)
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CORPORATIONS Purchase stock = you are an owner; common stock – you get a vote and elect a board of directors preferred stock – you get no vote but if the business fails, you get your money back first Majority stockholder can control company and choose board members; may choose themselves or family members
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CORPORATION ADVANTAGES Easy financial capital; need more money = sell more stock; write bonds – promises to repay principal + interest Professional managers run it. Limited liability for owners; the corporation is responsible for debts, not owners (attractive to business owners) Doesn’t die with the owners Easy to transfer ownership- you can just sell your stock
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CORPORATION DISADVANTAGES Hard to get a charter Owners have little say so; board of directors do it Double the taxes – Taxes of the corporation and personal taxes; must provide detailed records of sales and expenses so that it can pay taxes on profits More government regulation – must register with the state; must register with the SEC (Securities and Exchange Commission) Must provide data about sales and profit to the public
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REGULATION Competition, free markets part of the U.S. economy Late 1800s, government interventions; varies from state to state Regulation giant corporations; set insurance companies’ rates, licensing exams, protect consumers Regulate banks, insurance companies, gas companies, television service, electricity; few regulations recently to promote competition States try to attract new business; advertise on tv; states issue bonds and help finance industry; reduce taxes to attract business
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