TYPES OF BUSINESS ORGANIZATIONS SOLE PROPRIETORSHIP 72 OF

TYPES OF BUSINESS ORGANIZATIONS

SOLE PROPRIETORSHIP- 72% OF BUSINESSES Advantages of sole proprietorships Ease of start up Ease of Management You keep all profits You do not have to pay any business taxes • Psychological advantages • Ease of exit • • Economic Weakness of sole proprietorship: • Unlimited Liability: you have total responsibility for all debts and liabilities of the company • Difficulty in raising financial capital • Limited size and efficiency • Limited managerial experience • Limited Life

ACTIVITY • If you started your own business what would it be? • What are some of the 4 Factors of production you would need. • 2 examples for each Capital Enterprise Labor Land

PARTNERSHIPS-9% OF BUSINESSES Two major types of partnerships: • General Partnership: (most common type) all partners are responsible for management and the financial responsibilities of the partnership. • Limited Partnership: at least one partner is not active in the day to day running of the business. They have limited liability. Articles of Partnership: contract between partners spelling out the rules of partnership. Dividing profit Dividing responsibility Admitting new partners Buying out partners

PARTNERSHIPS Advantages of Partnerships: • Ease of establishment • Ease of Management: each partner has different things to offer-specialization • No special business taxes • Easier to raise financial capital • Larger than sole proprietorship • Easier to attract qualified workers Disadvantages of Partnerships • Unlimited liability • Limited partner is only responsible for his initial investment. He has limited liability. • Limited Life • Conflict between partners

CORPORATIONS- 20% OF BUSINESS 74%-PROFITS

CORPORATIONS THE CORPORATE ENTITY IS THE MOST COMPLEX AND THE MOST ADMINISTRATIVELY BURDENSOME TYPE OF ALL BUSINESS ORGANIZATIONS. IT ALSO HAS THE GREATEST VARIANCE, COMING IN SMALL, MEDIUM, AND LARGE, AND FROM ONE TO ONE MILLION OWNERS.

CORPORATION- SET UP • Incorporate: to form a corporation. • Charter: a document granted by the state giving a corporation the right to do business • Stock: shares of ownership in the corporation • Stockholders (shareholders): owners of stock. Reasons to own stock: Dividends: share of corporate profits paid to stockholders Speculation: buy in hope that price of stock will increase.

THE ARTICLES OF INCORPORATION • The document that sets out the rules for running the company’s internal affairs • Includes the names of the incorporators (the responsible parties), the amount of stock it will be authorized to issue and its purpose • Determines the rights and obligations of members and directors • Shareholders elect a board of directors

CORPORATIONS Advantages of a corporation: • Ease of raising financial capital (main advantage) • Selling stock to investors • Selling bonds: a written promise to repay a loan on a specific date • Principal: the amount borrowed • Interest: the price paid for the use of another’s money • Borrowing money from banks. • Ability to hire • Limited liability • Unlimited life • Ease of transferring ownership: . Buying and selling stock is easy and is done millions of times a day • Disadvantages of a corporation: • Start up expenses are high. • Stockholders (owners) have a limited • Profits are taxed • Corporations are subject to more government regulations than sole proprietors or partners

LIMITED LIABILITY COMPANY (LLC) A very new creation that merges the basic sought after benefits of Limited Liability and Single Taxation with little administrative complexity. Advantages Disadvantages Limited Liability Single Taxation People Resources Ease of Creation Flexibility Growth (perhaps)

HOW TO FILE AN LLC • Choose an available business name that complies with your state's LLC rules. • File formal paperwork, usually called articles of organization, and pay the filing fee (ranging from about $100 to $800, depending on your state's rules). • Create an LLC operating agreement, which sets out the rights and responsibilities of the LLC members. • Publish a notice of your intent to form an LLC (required in only a few states). • Obtain licenses and permits that may be required for your business.

WHAT IS A NONPROFIT? • Tax & regulatory definition: an organization that - Enjoys special tax status - Faces a non-distribution constraint (profit=0) • Functional definition: an organization that forms to - Perform “public tasks” • environmental protection, social service provision - Perform tasks for which there is demand but no supply from forprofits or governments • religious activity, art museum - Influence the direction of public policy • political party, issue organization 13

NONPROFIT • Not conducted or maintained for the purpose of making a profit. • not commercially motivated • A nonprofit organization is one that has committed legally not to distribute any net earnings (profits) to individuals with control over it such as members, officers, directors, or trustees. It may pay them for services rendered and goods provided. 14

NONPROFIT • A nonprofit organisation is formed for the purpose of serving a public or mutual benefit other than the pursuit or accumulation of profits for owners or investors. The nonprofit sector is a collection of entities that are organisations; private as opposed to governmental; non-profit distributing; self-governing; voluntary; and of public benefit. 15

NONPROFIT • A nonprofit organisation is formed for the purpose of serving a public or mutual benefit other than the pursuit or accumulation of profits for owners or investors. The nonprofit sector is a collection of entities that are organisations; private as opposed to governmental; non-profit distributing; self-governing; voluntary; and of public benefit. 16