1. Business Organizations Businesses may be organized as individual proprietorships, partnerships, or corporations.

2. Sole Proprietorship Business run by one person. It is the smallest in size but the most numerous and profitable among business organizations.

3. Advantages Ease of start-up and management. Owner receives all of the profits. Business itself pays no income tax.  Taxes are only on the owner’s income Psychological satisfaction. Ease of closing the business.

4. Disadvantages Owner has unlimited liability. Hard to raise capital. Owner might have little capital for start-up. Limited managerial experience and trouble attracting qualified employees. May need inventory. Life of the business depends on the owner’s.

5. Partnership A business jointly owned by 2 or more persons. Least numerous among business organizations. Smallest proportion of sales and net income. All partners involved with management and finance (General). When one partner is not involved (Limited). Articles of a partnership determine how the profits or losses are divided.

6. Advantages Ease of start-up & management. No special taxes. Easier to raise capital  Loans  New partners Larger size aids efficiency. Easier to attract qualified employees.

7. Disadvantages Partners are responsible for each others actions (except in Limited). Life of the partnership depends on the partners. Potential for partner-to-partner conflicts Bankruptcy (see handout).

8. Corporations Business organization recognized by law as a separate legal entity. Receive a charter (permission) from the government which includes information about stock ownership. Stockholders have certain rights depending on what type of stock they hold (Common or Preferred).

9. Common Stock Represents basic ownership of a corporation. Stockholders receive voting rights. No dividend guarantee.

10. Preferred Stock Dividend guarantee. Stockholders receive no voting rights. Stockholders receive dividends before common stockholders. Stockholders get their investment back before common stockholders if the corporation goes out of business.

11. Joint Characteristics Ownership certificates in a corporation. Purchased by investors called stockholders. Provide ownership rights.

12. Advantages Ease of raising capital – Bonds Professional run firms instead of owners (shareholders). Owners have limited liability. Life of the business is unlimited. Easy to transfer ownership. Ownership can earn dividends.

13. Disadvantages Charter is expensive. Ownership and management are separate – so shareholders have little say. Corporate income is taxed twice – Double Taxation. Subject to government regulation – SEC.