Business Organizations Sole Proprietorships Partnerships and Corporations Sole

Business Organizations Sole Proprietorships, Partnerships, and Corporations

Sole Proprietorship § Def: A business owned and run by one person. § Most common form of business in the U. S. § Sole proprietorships account for 73% of firms in the U. S. § Exp: Lemonade Stand, Lawn mowing business

Advantages § § § Ease of start-up Relative ease of management Keeps profits No separate business income tax Psychological satisfaction

Disadvantages § § § Unlimited liability Difficulty in raising capital Limited size and efficiency Limited experience Difficulty attracting best employees Limited life

Partnerships § Def: A business jointly owned by two or more persons. § Make up 7. 1% of firms in the U. S. § Exp: Rosati’s, Vitek’s

Types of Partnerships § General § A partnership in which all partners are involved in the daily operations of the business. § Limited § A partnership in which one partner is not involved in the daily running of the business. § Usually a partner that contributed funds to start the business

Advantages § § Ease of establishment Ease of management Lack of special taxes Can attract more financial capital easier than sole props. § Larger size=more efficient operations § Easier to attract top talent

Disadvantages § In general partnership, each partner has unlimited liability § Limited life § Potential for conflict between partners

Corporations § Def: A business organization chartered by the state. § Created by a charter granted by state/fed govt § Stocks are then sold to investors and the money is used to set up the company. § If the company makes a profit, the shareholders earn a DIVIDEND, a payment of company profits.

Advantages § § § Ease of raising financial capital Directors can hire professional managers Limited liability for owners Unlimited life Ease of transferring ownership (sell stock)

Disadvantages § Difficulty of getting a charter § Shareholders (owners) have little say in daily operations § Double taxation : corporate tax + shareholder dividends § Subject to more gov’t regulation

Liability § Sole proprietorship- Unlimited liability § Owner is responsible for all losses § Partnership- Unlimited liability § Partners are responsible for all losses § Corporation- Limited liability § Investors can only lose as much as they invested, all other losses are covered by the corporation itself

Review § § Which organization is most common? Which organization earns most profits? Who owns the corporation? What type of liability does the general partner or sole proprietorship have? § What type of liability does the owner of the corporation have?