Business Organizations Business Organizations n Profit seeking organization

Business Organizations

Business Organizations n Profit seeking organization that attempts to produce goods and services to meet the needs and wants of the consumer.

Sole Proprietorship Business owned and operated by one person. n Approx: 70% of all firms n

Advantages and Disadvantages of a Sole Proprietorship Advantages n Easy to start – requires least amount of capital n Easy to manage n Get all profits n No business income tax. n You are the boss n Easy to liquidate the firm Disadvantages n n n Unlimited liability Hard to raise startup capital Small size might be inefficient. Most have limited managerial skills Hard to attract workers Limited life

Partnership Jointly owned business with two or more people. n General partnership n Limited partnership n Articles of partnership n

Advantages and Disadvantages of a Partnership Advantages n Easy to start n Share management n No special taxes to pay. n Easier to attract capital n More efficient n Easier to attract talent Disadvantages n Unlimited liability n Responsible for partner. n Limited life n Conflict between partners.

Corporation A form of business organization recognized by law as a separate legal entity having all the rights as an individual. n Raise money by selling stock which involves selling part ownership in their corporation n

Stockholders Own a share of the corporation. n Stocks are also called equities. n There are two ways to make money on stocks n – Dividends (payment made by corp to its shareholders) – Capital gains (profit from sale of investment/stock)

Types of Stock Common stock Preferred Stock This is the type of stock that most people own n Dividends paid out of company to shareholders (payments can often change) n Higher risk, but better chance to participate in growth of a successful company n n Nonvoting ownership Receive dividends first, dividend amount doesn’t change Less risk, but less potential for profit because payments are always the same

Advantages and Disadvantages of the Corporation Advantages n Raising capital n Hire good management n LIMITED liability n Unlimited life n Easy to transfer ownership. Disadvantages n Expensive to get chartered. n Little say in how the company is run n More regulated n Subject to double taxation. (Corporate Income Tax)