Business Organizations ©2012, TESCCC
Objectives Be able to list and describe the three types of business organizations. Be able to explain the advantages and disadvantages of the three types of businesses. ©2012, TESCCC
Business Organization Profit-seeking enterprise that produces goods or services or carries on commercial enterprise. ©2012, TESCCC
Sole Proprietorship Most common form - most numerous A single owner-controlled business Easy to form; easy to end business Doesn’t share profit, doesn’t pay special tax Sense of personal freedom 75% of all businesses ©2012, TESCCC
Disadvantages of Sole Proprietorship Has unlimited liability Difficulty raising capital Limited life Inefficiency Limited managerial experience ©2012, TESCCC
Partnership- jointly owned by two or more persons Limited Partnership: no active role in running business – limits liability General Partnership: all partners responsible for management and financial obligations Limited Liability Partnership: all partners are limited partners ©2012, TESCCC
Partnerships Strengths Easy to start Lack of special taxes Easier to attract financial capital than a sole proprietorship Shared decision making ©2012, TESCCC
Partnerships Weaknesses Liability for other partner as well as personal liability Limited life Potential for conflict ©2012, TESCCC
Corporation – separate legal entity Artificial person Files charter to form Sells stock Ownership divided to shareholders or stockholders Pays dividend Two types of stock common stock preferred stock ©2012, TESCCC
Types of Corporations Closely Held Corporations: also known as privately held corporations. Stock is issued to only a few people, often family members Publicly Held Corporations: Many shareholders who can buy and sell stock on the open market ©2012, TESCCC
Corporation Strengths Ease of raising financial capital Hire professional to run corporation Limited liability Unlimited life Ease of transferring ownership 90% of sales ©2012, TESCCC
Corporation Weaknesses Difficult to start Shareholders have little say in how business is run Must pay special tax (taxed twice) More government regulation ©2012, TESCCC