Types of Business Organizations Ch. 8

Role of Entrepreneurs in U.S. Economy Entrepreneur’s help the market economy in 4 ways: 1.Introduce New Products 2.Improve Quality of Existing Products 3.Introduce New Production Methods 4.Introduce New Ways of Doing Business

Cont’d In short, an entrepreneur comes up with an idea, turns that idea into a marketable product, accepts the risk of success or failure, and claims any resulting profit or loss.

Sole Proprietorship Sole Proprietorship- this is the simplest form of business type, in which there is a firm that is owned and managed by one person, but may sometimes hire workers. Ex: Mom and Pop stores.

Advantages of a Sole Proprietorship 1.Easy to start 2.Few gov’t regulations 3.Complete Control 4.Owner keeps all profit 5.Lower taxes 6.Pride of ownership

Disadvantages of Sole Proprietorships 1.Unlimited personal liability 2.Difficulty raising financial capital (money used to get the business started) 3.Limited life 4.Difficulty finding and keeping good workers 5.Unlimited responsibility

Partnerships Own/controlled by 2 or more people Many start out as sole proprietorships Found in industry that requires little start-up cost Doctors Insurance co. Real estate co. Law firms Etc.

Types of Partnerships 1. General Partnerships: Equal decision making authority between partners equal liability Equal responsibility 2. Limited Partnerships: Some partners join strictly as investors (only care about profit, not the day to day operations) -Rarely give input -can not be held personally liable

Advantages of Partnerships 1. Easy to start Only thing is needed is a contract outlining: »How profits will be divided »Responsibilities of each partner »Guidelines for taking on new partners 2. Few Gov’t Regulations 3. Greater ability to raise financial capital

4. Shared Decision Making: May turn to each other for their view point about decisions One partner may be better at a task than the other 5. Lower Taxes & Shared Loss No one person shares burden of bills Also, bankers tend to lend more credit

6.More able to attract and retain workers (have more opportunities for advancement)

Disadvantages of Partnerships 1. Unlimited personal liability If one partner fails to pay his share of the bills, the other partners are still responsible 2. Conflict: partners may disagree Conflict over decisions may arise 3. Limited life of the business 4. Profits must be shared

Corporations A corporation is by far the most influential and most complex form of business organization. Owned by the public Forming a Corporation –1. apply for a state license (Articles of Incorporation-which is a written application to a state seeking permission to form a corporation.)

–2. application is reviewed by state officials –3. license is granted (corporate charter) Funding a Corporation –Stocks= ownership is given / more stocks, more ownership in a corporation

Types of Corporations 1.Private Corporation- they issue stock to just a few people, sometimes only family members who rarely sell their stock. Instead, they pass the stock on within the family. They account for the overwhelming share of corporations in the U.S. 2.Publicly Traded Corporation- in contrast, it has many shareholders who can buy or sell shares.

Advantages of Corporations 1.Easier to raise financial capital - More people, more money 2.Limited liability 3.Unlimited life 4.Specialized Management

Disadvantages of Corporations 1.Difficult and Costly to Start 2.Has more gov’t regulation 3.Owners have less control 4.Double taxation- the corporation pays taxes on any earnings, and the stockholders must pay a personal income tax on any earnings they receive from the corporation.

Other Organizations Cooperative- a group of people who pool their resources to buy and sell more efficiently than they could independently. (they want to minimize costs) 2 Types: 1.Consumer Cooperative- a retail business owned and operated by some or all of its customers in order to reduce costs.

Cont’d 2. Producer Cooperative- producers join forces to buy supplies and equipment and to market their output (Farmers Co-op)

Cont’d Not-for-profit Organizations- (Non- Profit Organization) these are groups that do not pursue profit as a goal; they engage in charitable, educational, humanitarian, cultural, professional, or other activities with a social purpose.