1. Ways that Businesses are Organized Organizational Structures

2. 3 Main Types of Business Sole Proprietorship Partnership Corporation

3. Sole Proprietorship One person owns the whole thing Advantages If the business succeeds, all the profits are yours You own everything Very easy to set up Disadvantages If the business fails, the failure is all yours Personally liable

4. Sole Proprietorship (continued) Disadvantages Personal assets will be seized in order to recoup debt from lenders Hard to raise money for expansion since all money invested must come from you

5. Scenario Sue Jenkins opens a sewing shop. She uses $2,000 of her own savings to get things started. To legally set her self up as a sole proprietor, she fills out a one page form and sends a check for $35 to the secretary of state. Sue owns a nice home valued at $250,000. She also owns a couple show horses worth $50,000.

6. What Happens if Sue Succeeds?

7. What Happens if Sue Fails?

8. Partnership Two or more people (but usually a small number) own everything Liability can be split equally or at a predetermined percentage Advantages If the business succeeds, all profits are split up amongst the partners The partners own everything Easy to set up

9. Partnership (continued) Disadvantages If t he business fails, all losses are recouped from owners All financing must come from partners Can get messy when trying to decide who is personally liable for what

10. Scenario Jennifer and Brittani open a bakery. Jennifer has always loved baking and Brittani has always wanted to run a restaurant business. It is agreed at formation that 20% of the partnership is Jennifer’s responsibility and 80% is Brittani’s. Jennifer rents a small apartment and has $500 in the bank. Brittani owns several stores in town and inherited a huge farm out in the country.

11. What Happens if the Partnership Succeed

12. What Happens if the Partnership Fails

13. Corporation One up to millions of people own portions of the business Each Portion is Called “Stock” Big decisions are made by voting The votes of the people with the most stock counts more than those with less stock Profits are shared whereas people with more stock (i.e. more pieces of the company) get more profits than those with less stock

14. Corporations (continued) Advantages Very easy to raise money since many people will potentially buy stock (i.e. contribute financially) to the company Zero personal liability Disadvantages Difficult and expensive to setup Requires lawyers, FTC approval, chunk of money, and time

15. Corporations (continued) Profits are split up amongst all the stockholders based on amount of stock No direct control of the company Some people may have direct control if they own a lot of stock and are employed by the company This is usually not the case Board of Directors are elected/appointed to run things No direct ownership of assets

16. Scenario A bunch of business people get together and decide to start a company that plans to sell hats all over the United States. The business people manage to get 5,000 people to purchase 1 million shares at $15 per share A board of directors is appointed and purchasing of property, plant, and equipment begins. After this initial round of purchasing, employees are hired.

17. What Happens if the Corporation Succeeds?

18. What Happens if the Corporation Fails?