- Slides: 7
Forms of Business Organizations.
Sole Proprietorship A Business owned and run by a single Individual. What are other terms that use sole as an adjective? SOLE: One and only, SINGLE easy to set up, management is simple, and owner keeps all profits What are some personal qualities that a sole proprietor might need to form a successful proprietorship? may include intelligence, determination, self-confidence, flexibility, a sense of humor, commitment, and optimism.
Sole Proprietorship What are the major disadvantages of a sole proprietorship? total liability, or risk, for things that go wrong in the business, as well as having all responsibilities and doing all the work without any help. Unlimited Liability: Owner is responsible for all debts of a business
Partnerships Main Idea Partnerships are owned by two or more people. Partnerships may be general or limited. Advantages: General: all partners are jointly responsible for managing and debts. Limited: at least 1 partner is not active in daily running of the business. easy to start, easy to manage, lack of special taxes, financial capital attracted more easily than proprietorships, and operations are more efficient due to slightly larger size. Disadvantages: each partner is fully responsible for the acts of all other partners, limited partners may lose their initial investment if the business fails, limited life, and the potential for conflict between partners.
Corporations are recognized as separate legal entities with all the rights of an individual. Corporations file for permission to form from the national or state government, which grants a charter specifying the number of shares of stock that may be sold. CHARTER: Gov’t document that gives company permission to create a corporation Stock: Certificate of ownership in a corporation Common Stock: one vote per share for stockholder. Preferred Stock: no voting privileges, but receive their dividends before common stockholders. Dividend: Check paid to stockholders, usually quarterly representing a portion of the corporate profits.
Corporation Advantages: ease of raising financial capital, limited liability for owners, directors can hire professional managers to run the company, unlimited life, and ease of transfer of ownership. Limited Liability: Corporation not the owners are liable for debts and other obligations. Disadvantages: double taxation, difficulty and expense of getting a charter, shareholders (owners) have little say in how the business is run, and more government regulation.
Franchise. In a franchise, the franchisee rents or leases the name, business profile, and way of doing business from the owner, or franchisor. Advantages: national advertising, instant access to a successful product line, and professional advice when needed. Disadvantages: Owning a franchise is not the same as owning a business.