1. Business Organizations ©2012, TESCCC

2. Objectives 1.Be able to list and describe the three types of business organizations. 2.Be able to explain the advantages and disadvantages of the three types of businesses. ©2012, TESCCC

3. Business Organization Profit-seeking enterprise that produces goods or services or carries on commercial enterprise. ©2012, TESCCC

4. Sole Proprietorship Most common form - most numerous A single owner-controlled business Easy to form; easy to end business Doesn’t share profit, doesn’t pay special tax Sense of personal freedom 75% of all businesses ©2012, TESCCC

5. Disadvantages of Sole Proprietorship Has unlimited liability Difficulty raising capital Limited life Inefficiency Limited managerial experience ©2012, TESCCC

6. Partnership- jointly owned by two or more persons Limited Partnership: no active role in running business – limits liability General Partnership: all partners responsible for management and financial obligations Limited Liability Partnership: all partners are limited partners ©2012, TESCCC

7. Partnerships Strengths Easy to start Lack of special taxes Easier to attract financial capital than a sole proprietorship Shared decision making ©2012, TESCCC

8. Partnerships Weaknesses Liability for other partner as well as personal liability Limited life Potential for conflict ©2012, TESCCC

9. Corporation – separate legal entity Artificial person Files charter to form Sells stock Ownership divided to shareholders or stockholders Pays dividend Two types of stock common stock preferred stock ©2012, TESCCC

10. Types of Corporations Closely Held Corporations: also known as privately held corporations. Stock is issued to only a few people, often family members Publicly Held Corporations: Many shareholders who can buy and sell stock on the open market ©2012, TESCCC

11. Corporation Strengths Ease of raising financial capital Hire professional to run corporation Limited liability Unlimited life Ease of transferring ownership 90% of sales ©2012, TESCCC

12. Corporation Weaknesses Difficult to start Shareholders have little say in how business is run Must pay special tax (taxed twice) More government regulation ©2012, TESCCC

13. Franchise Contract between a franchiser (corporation) and a franchisee (sole proprietor) Very popular among restaurants and fast food places; many chain stores use this method to expand a proven idea

14. Franchise Franchisee Provides Building/Facilities Employees Fee or % of profits Management Franchiser Provides Supplies Legal Help Training Advertising

15. Franchise Advantages Know idea works Easier start up legally Receive business training Allows corporation to expand at lower cost Legal protection Disadvantages Cannot use your own ideas Must follow the contract Could be closed if low performing Franchisee may be poor manager