ECONOMICS UNIT 3 Sole Proprietorships n Sole Proprietorship

ECONOMICS UNIT 3

Sole Proprietorships n Sole Proprietorship – business owned and run by ONE PERSON. n S. P. can have many employees, but are still only owned by one person.

Sole Proprietorships n STRENGTHS: 1. 2. 3. Don’t have to share your profits You are your own boss! Pay taxes

Sole Proprietorships n Weaknesses: 1. 2. 3. Owner has unlimited liability Difficult to raise $ to start a business Limited life – when owner quits, firm is done

LIABILITY n Limited Liability: You can only lose what you started out with ($) n Partnership, Corporation n Unlimited Liability: You are legally bound to pay debts of your business n Sole Proprietorship

LIFE n Limited Life: Once an owner quits, dies, etc. , the business dies too n Sole Proprietorship, Partnership n Unlimited Life: The business goes on even if someone leaves. n Corporation

PARTNERSHIPS n Partnership: business owned by 2 or more persons General Partnership: all partners are responsible for management and financial duties of the business n Limited Partnership: At least one partner is not active in the daily running of the business. n

Partnerships n STRENGTHS: 1. Limited Liability 2. Different talents 3. Partnerships attract financial help easier than sole proprietorships

PARTNERSHIPS n WEAKNESSES: 1. 2. 3. Each partner is responsible for acts of all other partners. Limited life: when someone quits or is added, firm legally ceases to exist Potential conflict between partners

CORPORATIONS n Corporation: business organization recognized by law as having the same rights of an individual n To form a corporation – you must file for permission from government n If approved, you receive a charter: gov’t document giving you permission to create your corporation

CORPORATIONS n STRENGTHS 1. Easy to raise financial capital – sell stock and bonds: written promise to repay the amount borrowed at a later date - principal: amount of money borrowed - interest: price paid for use of another’s $ while a corporation borrows it.

CORPORATIONS STRENGTHS: (CON’T) 2. Can hire best management / talent 3. Limited liability for owners. Corporation can declare bankruptcy: court granted permission to not pay off some or all of its debts, which forces it out of business. 4. Unlimited life: business continues to exist even when ownership changes

5. Easy to transfer ownership – can sell your stock, leave the business

CORPORATIONS n n WEAKNESSES: Difficulty / expense of getting a charter Shareholders have little say in how the business is run (Board of Directors) Business must pay income taxes because it is a legal entity Corps. have more government regulation. SEC – Securities & Exchange Commission

CORPORATIONS n Corporations have stockholders / shareholders: investors in a corporation. n Stock: ownership parts of the firm

CORPORATE STRUCTURE n TYPES OF STOCK: 1. Common Stock: represents basic ownership of a corporation (1 vote per share) 2. Preferred Stock: represents nonvoting ownership of a corporation. You receive dividends before common stock holders Proxy: ballot that gives a rep. the right to vote on corporate matters.