1. Economics Honors Edgenuity: Public & Private Solutions, Lesson 8
Business Structures
Economics Honors
Edgenuity: Public & Private Solutions, Lesson 8

2. # 1 – Sole proprietorships
Owned and run by one person
75% of US businesses are these
Examples:
Tax preparer, in-home child care business, independent contractor

3. Advantages Easy to start/stop Little gov’t oversight
Owner keeps profits
Few business taxes
Decision-making by one person

4. Disadvantages Owner has unlimited liability Difficult to raise capital
Sometimes hard to manage

5. # 2 – Partnerships Two or more owners Share risk, losses, profit
9% of US businesses are partnerships
Examples:
Law firms
Doctors’ practices

6. Advantages Easy to start/stop Easier to manage Fewer business taxes
Easier to raise capital
More efficient than sole proprietorship

7. Disadvantages Can require owners to be liable for partners’ losses
Difficult to manage disagreements
Must be reorganized if one partner leaves

8. # 3 – Corporations
Business organization created as a separate legal entity from its owners
Have same rights and responsibilities as an individual
Can enter into contracts, buy/sell property, sue and be sued
Make up 20% of US businesses

9. Shareholders: Own corporations by buying stock in the company
Stock may be owned by a few or by thousands of investors
Public companies sell stock to the public
Corporations use sale of stocks/bonds to raise capital

10. Advantages Limited liability for owners and stockholders
Easy to raise capital
Easy to transfer ownership
Can have unlimited life, even if shareholders or owners leave

11. Disadvantages Can be more expensive to form
Many state/federal regulations
Individual owners have less say
Shareholders must pay taxes on profits

12. # 4 – Franchises The franchisee: Franchiser supplies:
Franchising involves sale of a business model to individual owners, who can sell a company’s product or services
Franchiser supplies:
Training
A product supply
Advertising and marketing
A recognizable trademark
The franchisee:
Licenses the trademark
Pays fees

13. Advantages Easier to start than starting from scratch
Provides a proven idea, branding, marketing
Provides support from the franchisor
Creates an established relationship with suppliers

14. Disadvantages Can be expensive to start and own
Includes restrictions created by franchisor
Profits must be shared with franchisor

15. # 5 – Cooperatives
Business operated collectively and jointly owned by a group
Profits distributed between member-owners
Board of directors makes decisions
Members buy shares based on their needs

16. Advantages Reasonable cost for supplies and services
Earnings shared between members
Members pool their products to receive better sale prices
Creates a democratic business

17. Disadvantages Requires financing from member-owners
Those with more equity do not have more say than those with the least