1. U3C8: Types of Business Organizations
Economics

2. Main Idea
Most of the producers in a market economy are business organizations, commercial or industrial enterprises and the people who work in them. The purpose of most business organizations is to earn a profit.

3. Essential Question
What are the types of business structures and what are the advantages and disadvantages of each?

4. 8.1 Sole Proprietorships
Most common type of business organization in the United States
A business owned and managed by a single person
Account for more than 70% of all businesses in U.S.
Generate less than 5% of all sales by American businesses

5. Sole Proprietorships Advantages Disadvantages easy to open or close
few regulation
freedom and control
owner keeps profits
limited funds
limited life
unlimited liability

6. 8.2 Forms of Partnerships
A partnership is a business owned by two or more people, or “partners,” who agree on how responsibilities, profits, and losses will be divided
3 types: general partnerships, limited partnerships, limited liability partnerships
General: most common type; partners share responsibility, liability, and profits equally, unless there is a partnership agreement that specifies otherwise
Limited: at least one partner is not involved in the day to day running of business and is liable only for the funds he or she has invested
Limited liability: (LLP) a partnership in which all partners are limited partners and not responsible for the debts and other liabilities of other partners (medical partnerships, law firms, and accounting firms)

7. Sole Proprietorships v. Partnerships
one owner
easy to open
few regulations
freedom and control
limited funds
limited life
unlimited liability
two or more owners
easy to open
few regulations
joint decision making
access to resources
limited life
unlimited liability on most cases

8. Partnerships: Advantages and Disadvantages
Easy to open and close
Few regulations
Access to resources
Joint decision making
specialization
Unlimited liability
Potential for conflict
Limited life

9. 8.3 Corporations, Mergers, and Multinationals
Characteristics of Corporations
Third main kind of business organization
Owned by individuals called shareholders and stockholders
Shareholders own rights to the companies profits, but face limited liability for the company’s debts and losses
A Corporation that issues stock and can be freely bought and sold is called a public company
One that retains control over who can buy or sell the stock is called a private company
Corporations make up 20% of business in US, produce most of the goods and services and employ the majority of Americans

10. Corporations: Advantages and Disadvantages
Access to resources
Professional managers
Limited liability
Unlimited life
start-up cost and effort
Heavy regulation
Double taxation
Loss of control

11. Business Consolidation
Horizontal merger: joining of companies that offer similar products or services
Vertical merger: joining of companies involved in different steps of production or marketing of a product or service
Conglomerate: merger of companies that produce unrelated goods or services
Multinational corporation: large corporation with branches in several coutries

12. 8.4 Franchises, Co-ops, and Nonprofits
Advantages: training, advertising (fast food)
Disadvantages: risk, loss of control
Co-ops
3 types: consumer, service, producer
Consumer: (organic food cooperative)
Service: (credit union)
Producer: (agricultural products)
Nonprofits
No profit and no taxes (Salvation Army, American Bar Assiciation)