Major Forms of Business Organization

Sole Proprietorship Business Owned by One Person

Advantages of Sole Proprietorship Easy to start business. Owner makes all the decisions and is own boss. Owner receives all profits. No business income taxes. Psychological—sense of freedom.

Disadvantages of a Sole Proprietorship Capital is limited to what the owner can supply or borrow. Unlimited liability - Owner is liable (responsible) for all debts, even losing personal property if business fails. Long hours and hard work necessary and owner may have limited skills. Limited life - Life of the business depends upon owner; it ends if owner quits or dies.

Partnership Business owned and managed by a small group, often not more than two or three people, who become partners.

Types of Partnerships General Partnership – all partners responsible for the management and financial obligations of the business. Limited Partnership – at least one partner not active in daily running of the business.

Advantages of a Partnership Fairly easy to start the business. Easier management – each partner brings ideas and expertise to the business. Special taxes on partnership. More sources of capital available. More business skills available – usually can attract top talent into the business.

Disadvantages of a Partnership Each partner liable for business debts made by all partners, even to losing personal property if business fails (unless partnership is limited liability partnership). Each partner can make decisions, more than one boss – potential conflicts. Limited Life - Partnership ends of a partner quits or dies. Each partner shares the profit.

Corporation Business owned by a number of people (called stockholders or shareholders)and operated under written permission from the state in which it is located. Charter is granted giving business permission to incorporate.

Stock Stockholders or shareholders – investors who become owners of the corporation. Common stock – basic ownership – one vote for each share of stock owned. Preferred stock – non-voting ownership, but get dividends first. Dividends – Money representing a portion of the corporate profits.

Advantages of a Corporation More sources of capital available – stocks and bonds. Specialized managerial skills available. Limited liability - Owners liable only up to the amount of their investment. Ownership can be easily transferred through the sale of stock; business not affected by change of ownership. Unlimited life.

Disadvantages of a Corporation Difficult and more expensive to start the corporation. Owners do not have control of decisions made each day, unless they are officers of the company. Business activities of the corporation limited to those stated in the certificate of incorporation. Very detailed record keeping and corporation required to pay income tax on profits. More government regulation.

Franchise Written contract granting permission to sell someone else’s product or service in a prescribed manner over a certain period of time and in a specified territory.

Cooperative Business owned by the members it serves and is managed in their interest. Consumer cooperative Service cooperative Producer cooperative

Non-Profit Organizations Examples: Towns or Municipal Corporations Private Colleges and Universities American Red Cross Future Business Leaders of America

Labor Unions Work for its members’ interests in various employment matters. Use collective bargaining – negotiating for benefits, working conditions, etc. between management and labor representatives.

Professional Organizations Organization of people in specialized occupations that work to improve the profession. Examples: American Bar Association, American Management Association, National Education Association, etc.

Business Organizations Chamber of Commerce Better Business Bureau

Government Link between consumers and resources. Directly produce and distribute certain goods and services to consumers. –Tennessee Valley Authority –National Defense Indirectly acts as regulator with things such as public utilities, Social Security, etc.