Types of Business Organizations Sole Proprietorship Partnerships Corporations The Franchise

Sole Proprietorship – About 70% of Businesses

Advantages of sole proprietorships: Easy to form You make the decisions You keep all profits No business taxes Easy to exit Economic Weakness of sole proprietorship: Unlimited Liability: you have total responsibility for all liabilities Difficulty in raising financial capital Limited Life – It dies with the owner

Partnerships – About 9% of Businesses

Partnerships Two major types of partnerships: General Partnership: (most common type) all partners are responsible for management and the financial responsibilities of the partnership. Limited Partnership: at least one partner is not active in the day to day running of the business. They have limited liability. Articles of Partnership: contract between partners spelling out the rules of partnership. Dividing profit Dividing responsibility Admitting new partners Buying out partners

Partnerships Advantages of Partnerships Disadvantages of Partnerships Benefits of Specialization: each partner has different things to offer No special business taxes Disadvantages of Partnerships Unlimited liability for general partners Limited partner is only responsible for his initial investment. He has limited liability. Conflict between partners

What fits best with each business??? Tell me Why!!!

Corporations – About 20% of Businesses – About 83% of Profits

Corporation- Set up Charter: a document granted by the state giving a corporation the right to do business Stock: shares of ownership, or assets, in the corporation Assets: Anything of value to which the firm has a legal claim Stockholders (shareholders): owners of stock. Reasons to own stock: Dividends: share of corporate profits paid to stockholders Speculation: buy in hope that price of stock will increase.

Corporations Advantages of a corporation: Limited liability: Owners can lose only what they have invested in the firm Unlimited life Ease of raising financial capital Selling stock to investors Selling bonds: a written promise to repay a loan on a specific date Borrowing money from banks. Disadvantages of a corporation: Profits are taxed twice once as Corporate income tax, and again as income tax on dividends for stockholders Start up is complicated & can be expensive Corporations are subject to more government regulations than sole proprietors or partners

Corporate structure Stockholders: The most important persons in a corporation The owners of the corporation Vote for the board of directors one vote for each share owned Board of Directors: duty to direct the corporations business by setting board policies and goals Decides products to sell, what % of profits go to dividends, & what % of profits go to modernization and expansion Chooses top officers like president, secretary, & treasurer who carry out day-to-day operations

Corporate structure

Dare to Compare Using the interwoven circles list the similarities and differences between Sole Proprietorships, Partnerships, and Corporations

The Franchise