Types of Businesses Econ Part 2 Lesson 3

Types of Businesses Econ. Part 2, Lesson 3

Proprietorship § The most common form § § of business organization in the United States is the sole proprietorship Sole proprietorship: business owned and operated by one person Many beauty salons, restaurants, hobby stores, and lawn care services are sole proprietorships

Setup of a Proprietorship § Structure: generally anyone § § can start a sole proprietorship whenever they want to if they have the resources needed Advantages: the owner has the pride of owning the business and receives all the profits; decisions can be made quickly since there is no “higher-up” to consult Disadvantages: owners have unlimited liability, the owner is financially responsible all problems with the businesses Sole proprietors also can have difficulty raising money to run or grow the business Small business also often struggle to attract the best employees since the aren’t as established and may not offer the same benefits

Partnerships § Partnership: business owned by two or more people § Structure: Partners draw up a legal agreement called articles of partnership; documents how much money each will contribute and what role each will play in the business and says how they will share profits and losses § Advantages: Partnerships can usually raise more money or take in more partners to get money, they don’t pay corporate taxes, and the partners can each use their unique skills § Disadvantages: legal structure is complex and the partners have unlimited liability

Corporations § Corporation: business § § § recognized by law that has many of the rights and responsibilities of an individual Structure: first someone who wants to start a corporation must get a charter, a government document granting permission to organize Charter also specifies the amount of stock that will be issued People who buy the stock, the stockholders, own the corporation and elect a board of directors to run the corporation

Advantages of a Corporation § Corporations can raise more § § money by selling more stock and can usually borrow larger sums of money; makes expanding the business easier Some corporations are bigger than the entire economies of many countries Board of directors can hire professional managers to run the business and can be easily replaced if they aren’t successful Ownership of the corporation can easily transferred by buying or selling stock Corporations have limited liability, if the business fails you only lose the money you invested

Disadvantages of a Corporation § Corporations are often § § § expensive and complex to set up Business owners have very little say in the management of the business, only a few stock holders have enough shares to get change Corporations are subject to more regulation by government than other forms; they must release reports about the financial standing of the company Stockholders are subject to double taxation: the corporation has to pay income taxes and the stock holders have to pay income taxes of those earnings

Other Business Organizations § Non-profit organization: operates in a business like way to promote the interest of its members, goal is not to make a profit § Cooperative: voluntary association of people formed to carry on some kind of activity that serves its members; beef cooperative