Forms of Business Organizations Darius Blanding & Amber Brown Forms of Business Organizations

Day One Sole Proprietorships “Me, Myself, & I”

SOLE PROPRIETORSHIP A business that is owned and managed by one individual who receives all the profits and bears all the losses.

Benefits: Sole Proprietorship Ease of starting and going out of business Control over profits and business operations Pride of ownership Lower taxes (pays no corporate income taxes)

Costs: Sole Proprietorship Unlimited liability Difficulty in raising financial capital Responsible for all losses Management knowledge may be limited

Vocab Unlimited liability- owner is fully responsible for any problems with the company Inventory- stock of goods Limited life- the business ends if the owner dies or quits

Some Advantages Easy to start Owner doesn’t have to share profits with no one Owners enjoy being boss Easy to end business

Some Disadvantages Unlimited liability Trouble raising financial capital May not afford to pay enough workers Limited life

Quick Quiz

What is unlimited liability?

What are 3 advantages sole proprietorship What are 3 disadvantages of a sole proprietorship?

Owner is fully responsible for any problems with the company What is unlimited liability? Owner is fully responsible for any problems with the company

Advantage Disadvantage Unlimited liability Trouble raising financial capital May not afford to pay enough workers Limited life Easy to start Owner doesn’t have to share profits with no one Owners enjoy being boss Easy to end business

Day Two Partnerships “It Takes Two”

PARTNERSHIP A business that is owned and managed by two or more individuals who receive all the profits and bear all the losses.

Benefits: Partnership Easier to raise financial capital Partners may combine managerial skills Personal satisfaction Lower taxes (pays no corporate income taxes)

Costs: Partnership Unlimited liability Shared profits Possible conflicts between partners Possible instability after death of a partner

Vocab Limited partnership- when at least one partner doesn’t take part in running the business Bankruptcy- court permission to delay debt payments

Some Advantages Easy to start Easy to manage Easier to obtain money than a sole proprietorship Easy to attract talented workers

Some Disadvantages Each partner is responsible for what the other does Limited life Partners don’t always agree May be forced to file bankruptcy

Quick Quiz

1. What is bankruptcy-

List 3 advantages of limited partnership

List 3 disadvantages of limited partnership

Bankruptcy – Court permission to delay debt payments What is bankruptcy- Bankruptcy – Court permission to delay debt payments

Advantages Easy to start Easy to manage Easier to obtain money than a sole proprietorship Easy to attract talented workers

Disadvantages Each partner is responsible for what the other does Limited life Partners don’t always agree May be forced to file bankruptcy

Day Three Corporations “All For One”

CORPORATION A business that is owned by stockholders and has rights and responsibilities as if it were a person.

Benefits: Corporation Limited liability Greater financial capital Unlimited life Specialized management

Costs: Corporation Increased taxation (pays corporate income taxes) Difficulty in starting (each state has its own rules for a corporate charter) May be larger, more bureaucratic than other forms of business Increased government control

Vocab Charter- document that allows people to form an corporation Stocks- partial ownerships in a corporation Stockholders- people who buy stocks Dividend- portion of a company’s earnings Bond-written promise to pay back a loan Principal-amount of money borrowed Interest- price paid to use someone else's money Double taxation- a company’s profit is taxed twice

Some Advantages Stockholders don’t have to have a lot of knowledge about the business Stockholders have limited liability Continues to function even if the owners die or sell their shares

Some Disadvantages Difficult and expensive to get a charter Stockholders have little affect on the company Government has more rules than any other business

Quick Quiz

What is the relationship between stocks and stockowners?

What is the purpose of a charter?

Which type is best? Depends on your situation! They all have strengths and weaknesses.

Stockholders buy/own stock What is the relationship between stocks and stockowners? Stockholders buy/own stock

Allow people to form a corporation What is the purpose of a charter? Allow people to form a corporation