Forms of Business Organization SSEF 6 Chapter 3 Sec 1 Forms of Business Organization SSEF 6

Sole Proprietorships Describe the characteristics of the sole proprietorships. Proprietorship: is a business run by one person. The most numerous but smallest in size. Easiest to form, need business license and pay the fees. In Georgia: $139 for a DBA $399 for a Corporation.

Ideas You may mow lawns Sell Lemonade Ebay Run a proprietorship out of your garage, Internet, or professional office building whatever

Advantages vs. Disadvantages A: Easy Ease of management Enjoy ALL the profits The proprietorship does not have to pay separate business income taxes because the business is not recognized as a separate legal entity. Must pay personnel income tax on profits taken by the business.

A: Easy Be your own boss. Satisfaction Ease of going out of business. Pay any outstanding bills, and close up shop.

D: Loss Personally responsible for all losses and debts Got to raise financial capital Size and efficiency Limited managerial experience Difficult to attract qualified employees Limited life: business ends with the owners death, sale of business, or quits.

Partnerships Same risks and advantages as a sole proprietorship Least numerous of all business

Types of Partnerships General: one in which all partners are responsible for the management and financial obligations Limited: At least one partner is not present in the day-to-day operations

Examples Law Firms Medical Offices CPA

Advantages vs. Disadvantages A: Ease of establishment Ease of management Lack of special taxes on the partnership Attract more financial capital than proprietorship Larger size, slightly more efficient. Easier to attract top talent

Conflict with partners D: Equally fully responsible for all losses (must choose carefully who you enter into business with ) In the case of limited partner, they have limited liability. They are responsible for the amount of debt equal to that of their investment leaving the general partners to make up the rest. Limited life Conflict with partners

D: Bankruptcy: court-ordered permission to cease or delay debt payments. Kinds of Bankruptcy: See handout Credit Bureaus: Equifax (HQ in Atlanta) TransUnion (HQ in Chicago) Experian( HQ Dublin, Ireland) Innovis (HQ in Columbus, OH)

Corporations Def: is a form of business organization recognized by law as a separate entity having all rights of a individual. (Can enter into contract, sue or be sued, and buy/sell land) Fig 3.3 Hierarchy of a Corporation

What do you get? Charter- a government document that gives permission to create a corporation Stocks (ownership certificates) offered to Shareholders

What are the different kinds of stocks? Common Stocks- basic ownership of a corporation. The owner of common stock usually receives one vote per share owned. Vote used to elect board members Board hires professional management team to run business Preferred Stock- represents a nonvoting ownership. Can’t vote for board, but get dividends check before common stockholders.

Dividends- a check offered to each shareholder representing the corporate earnings

Advantages vs. Disadvantages A: Ease of raising capital. A bond is a written promise to repay the amount borrowed at a later date. The amount borrowed to the principle. While the money is borrowed, the corporation pays interest, the price paid to use another’s money. Bond Rating: Indicates their credit quality- AAA and AA:  High credit-quality investment grade AA and BBB:  Medium credit-quality investment grade BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or “JUNK BONDS"   D:  Bonds in default for non-payment of principal and/or interest

A: Directors can hire professional management teams. Provides a limited liability for its owners. Unlimited life. Ease of transferring ownership.

D: Expense of getting a charter Attorney’s fees and filing costs are high depending on state. Owners, or shareholders, have little to say in how the business is run after they voted for the board. Double taxation of corporate profits. Dividends are taxed twice-as corporate earnings and personal income.

Increase government regulations. If a corporation wants to go public, it MUST register with the SEC (Security Exchange Commission).

Business Regulation Business Development