business organizations sole proprietorships, partnerships, and corporations
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Business OrganizationsBusiness Organizations
Sole Proprietorships, Partnerships, and Corporations
Sole Proprietorships, Partnerships, and Corporations
Sole ProprietorshipSole 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
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
AdvantagesAdvantages
Ease of start-up Relative ease of management Keeps profits No separate business income tax Psychological satisfaction
Ease of start-up Relative ease of management Keeps profits No separate business income tax Psychological satisfaction
DisadvantagesDisadvantages
Unlimited liability Difficulty in raising capital Limited size and efficiency Limited experience Difficulty attracting best employees Limited life
Unlimited liability Difficulty in raising capital Limited size and efficiency Limited experience Difficulty attracting best employees Limited life
PartnershipsPartnerships
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
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 PartnershipsTypes 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
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
AdvantagesAdvantages
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
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
DisadvantagesDisadvantages
In general partnership, each partner has unlimited liability
Limited life Potential for conflict between partners
In general partnership, each partner has unlimited liability
Limited life Potential for conflict between partners
CorporationsCorporations
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.
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.
AdvantagesAdvantages
Ease of raising financial capital Directors can hire professional managers Limited liability for owners Unlimited life Ease of transferring ownership (sell stock)
Ease of raising financial capital Directors can hire professional managers Limited liability for owners Unlimited life Ease of transferring ownership (sell stock)
DisadvantagesDisadvantages
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
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 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
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
ReviewReview
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?
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?