Forms of Business Organization

3 Basic forms of organization 1) Single Proprietorship

3 Basic forms of organization 1) Single Proprietorship Form of business organization that places full responsibility on a single owner

3 Basic forms of organization 1) Single Proprietorship Form of business organization that places full responsibility on a single owner  It is the easiest type to organize

3 Basic forms of organization 1) Single Proprietorship Form of business organization that places full responsibility on a single owner  It is the easiest type to organize  Places responsibility on the owner

3 Basic forms of organization 1) Single Proprietorship Form of business organization that places full responsibility on a single owner  It is the easiest type to organize  Places responsibility on the owner  Positives Have power to make decisions

3 Basic forms of organization Negatives Prevents sharing of responsibility

3 Basic forms of organization Negatives Prevents sharing of responsibility Subject to unlimited liability, which allows courts to take the personal property of owners to satisfy claims against firm

3 Basic forms of organization Negatives Prevents sharing of responsibility Subject to unlimited liability, which allows courts to take the personal property of owners to satisfy claims against firm Difficult to raise $, solely based on personal wealth of the owner

3 Basic forms of organization Negatives Prevents sharing of responsibility Subject to unlimited liability, which allows courts to take the personal property of owners to satisfy claims against firm Difficult to raise $, solely based on personal wealth of the owner Limited Life, when the owner dies, so does the business

3 Basic forms of organization Partnership- a form of business organization with two or more owners

3 Basic forms of organization Partnership- a form of business organization with two or more owners This is the least common form

3 Basic forms of organization Positives Can raise more money

3 Basic forms of organization Positives Can raise more money Can share responsibility while still having power

3 Basic forms of organization Negatives Responsible for partner’s debt

3 Basic forms of organization Negatives Responsible for partner’s debt Unlimited liability

3 Basic forms of organization Negatives Responsible for partner’s debt Unlimited liability Limited life

3 Basic forms of organization Corporation- a form of business organization that requires a governmental charter granting them specific powers

3 Basic forms of organization Corporation- a form of business organization that requires a governmental charter granting them specific powers The most difficult to start

3 Basic forms of organization Positives Raise money through the sale of stock or corporate bonds

3 Basic forms of organization Positives Raise money through the sale of stock or corporate bonds  Stock-part ownership of company

3 Basic forms of organization Positives Raise money through the sale of stock or corporate bonds  Stock-part ownership of company  Corporate bond- a loan to a company

3 Basic forms of organization Positives Raise money through the sale of stock or corporate bonds  Stock-part ownership of company  Corporate bond- a loan to a company

3 Basic forms of organization Positives Con’t Limited liability- individual owners cannot be sued

3 Basic forms of organization Positives Con’t Limited liability- individual owners cannot be sued Unlimited life, corporation carries on even if owner dies

3 Basic forms of organization Negatives Legal control of the corporation is determined through voted stock  Majority vote determines most major decisions

3 Basic forms of organization The Costs of Production

3 Basic forms of organization The Costs of Production Fixed Costs-expenses that must be paid no matter the quantity produced

3 Basic forms of organization The Costs of Production Fixed Costs-expenses that must be paid no matter the quantity produced  Ex. Mortgage, property tax

3 Basic forms of organization The Costs of Production Fixed Costs-expenses that must be paid no matter the quantity produced  Ex. Mortgage, property tax Variable Costs- expenses that change with the quantity produced

3 Basic forms of organization The Costs of Production Fixed Costs-expenses that must be paid no matter the quantity produced  Ex. Mortgage, property tax Variable Costs- expenses that change with the quantity produced  Ex. Wages and raw materials

3 Basic forms of organization Most new businesses underestimate the fixed costs

3 Basic forms of organization Most new businesses underestimate the fixed costs Causing them to under produce their product, or sell at too low of a price

3 Basic forms of organization Most new businesses underestimate the fixed costs Causing them to under produce their product, or sell at too low of a price One way to fix this is to sell more products

3 Basic forms of organization Most new businesses underestimate the fixed costs Causing them to under produce their product, or sell at too low of a price One way to fix this is to sell more products  Ex. If your fixed costs are $100 (rent, tax) and you sell 100 items, your fixed cost per product is $1

3 Basic forms of organization Most new businesses underestimate the fixed costs Causing them to under produce their product, or sell at too low of a price One way to fix this is to sell more products  Ex. If your fixed costs are $100 (rent, tax) and you sell 100 items, your fixed cost per product is $1  Increase to 1000 products and your fixed cost per product is $.10