Business Organization

Sole Proprietorship A business owned and managed by a single individual. 75% of all businesses 6% of sales. (67% make less than $25k). Examples- Bike shop, barber, gardener, bakery.

Sole Proprietorship Positive Full control. Start-up costs low (business license). Relatively few regulations. Full receiver of profits. Taxation. Easy to discontinue.

Sole Proprietorship Negative Unlimited liability. Limited capital ($) for expansion. Lack of permanence.

*General v. Limited Liability Partnerships or (LLP). A business organization owned by two or more persons. 7% of all businesses. 5% of all sales. *General v. Limited Liability Partnerships or (LLP). Examples- Doctor, Lawyer, Accountant.

Partnerships Positive Low start-up costs Shared decision making. Specialization/complimentary qualities. Larger pool of assets = expansion. Taxation.

Partnerships Negative Unlimited liability. Potential for conflict.

Corporations A legal entity, or being, owned stockholders. 20% of all businesses. 90% of all sales. Examples: Wells Fargo, UPS, Disney, Wal-Mart.

Corporations Positives Limited liability. Capital investment and expansion easy w/stock offering. Stockholders do not carry responsibility for corporation’s actions. Easy to raise money to purchase capital. Long life.

Corporations Negative Difficult and expense of start-up. Double taxation. (Corporate and Individual) Loss of Control = Stockholders. More regulations.

Corporation Combinations Horizontal Merger – The joining of two or more firms competing in the same market with the same good or service. Vertical Merger – The joining of two or more firms involved in different stages of producing the good or service. Conglomerate – The joining of companies that produce entirely different products. (Time Warner)

Franchise A semi-independent business that pays fees to a parent company. The franchisee is granted the exclusive right to sell a certain product or service in a given area. Franchisee must pay royalties to parent company.

Franchise Positives Built-in reputation/brand recognition. Management and training support. Standardized quality. National advertising. Buying power.

Franchise Negatives High franchise/royalty fees Strict operating standards. Purchasing restrictions. Limited product line.

What business structure should we adopt? Which business organization would you choose? What are the advantages of this choice? What are the disadvantages of this choice?

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