1. Business Organizations
Chapter 3

2. Sole Proprietorships Most common business organization.
Business owned and run by one person.

3. Easiest to start-up
Only has occasional business licenses and fees
Can be run from anywhere
House, office, internet, garage, etc.

4. Advantages Ease of start-up Relative ease of management
Owner enjoys all the profits/no other owners to share with

5. Don’t have to pay separate business income taxes.
Psychological satisfaction (able to be own boss)
Ease of getting out of business.

6. Disadvantages
Unlimited liability – owner is fully responsible for all losses and debts of the business.

7. Difficulty in raising financial capital.
Hard to get a loan when you have no partners to share liability with.
Size and efficiency.
May need to hire certain # of employees or have a limited inventory.

8. Proprietor often has limited managerial experience.
Difficulty of attracting qualified employees.
May need employees to be able to perform several jobs.

9. Limited life – firm legally ceases to exist when the owner dies, quits, or sells the business.

10. Partnership Business jointly owned by two or more people.
Least numerous type of business.

11. Types General – most common All partners share responsibility.
Limited –
One partner is not involved in daily running of the business.

12. Forming
Easy to start
Have papers to decide jobs of partners called articles of partnership.

13. Must be careful to pick good partners because both are fully responsible for the business.

14. Advantages Ease of establishment. Ease of management.
Lack of special taxes.

15. Get financial capital (money) easier than proprietorships.
More efficient because larger in size.

16. Easier to attract well-trained workers.

17. Disadvantages
Each partner is fully responsible for the acts of all other partners.
Limited partnership – limited partners have limited liability (exception to the rule)

18. Limited life
If the partner dies, quits, or sells the business, it no longer ceases to exist
Potential for conflict between partners

19. Corporations
Form of business organization recognized by law as a separate legal entity.
Corporations can buy & sell property, enter into legal contracts, & sue.

20. Very formal and legal arrangement
Must file for a charter in order to form
Charter includes info about the name, address, # of shares of stock, etc.

21. 2 Types of Stock
Common
Basic ownership
1 vote/share
Vote elects board of directors

22. Preferred
No vote
Receive dividend first (get $ first)

23. Adv. (of a corp.) Ease of raising money. Can sell more stock.
Issue bonds.
A bond is a written promise to repay the amt. borrowed at a later date.
Amt. borrowed is principal.
Money earned is interest.

24. Directors of the corp. can hire professional managers to run the firm.
Limited liability for owners.
Corporation itself is responsible for debts and obligations.