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Business Organizations

Business Organizations . Chapter 3. Chapter 3, Section 1. Forms of business organizations. Sole Proprietorship. Sole Proprietorship A business owned and run by one person. Most numerous and profitable Smallest in size. Forming a Proprietorship Easiest to start up

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Business Organizations

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  1. Business Organizations Chapter 3

  2. Chapter 3, Section 1 Forms of business organizations

  3. Sole Proprietorship • Sole Proprietorship • A business owned and run by one person. • Most numerous and profitable • Smallest in size. • Forming a Proprietorship • Easiest to start up • Involves almost no requirements except for occasional business licensees or fees. • Example: Lemonade Stand / restaurant

  4. Advantages • Ease of starting up • Relative ease of management • Owner does not have to share profit or success with other owners. • Does not have to pay separate business taxes because the business is not a separate entity. • Psychological satisfaction. • Ease of getting out of business.

  5. Disadvantages • Unlimited Liability – The owner is personally and fully responsible for all the losses and debts of the business. • Difficulty in raising financial capital. • Size and efficiency. • Difficulty in obtaining minimum inventory • A stock of finished goods and parts in reserve.

  6. Partnerships • Partnership – a business jointly owned by two or more persons. • Shares many of the strengths and weaknesses of a sole proprietorship.

  7. Types of Partnerships • General Partnership • Most common form. • All partners are responsible for the management and financial obligations of the business. • Limited Partnership • At least one partner is not active in the daily running of the business. • Contributes funds or finances.

  8. Advantages • Ease of establishment. • Ease of management. • Can usually attract financial capital more easily than proprietorships.

  9. Disadvantages • Each partner is fully responsible for the acts of the other partners. • Limited Partnerships • Limited liability. • The investors responsibility of debt is limited by the size of their investment in the firm.

  10. Corporations • Corporation – a form of business organization recognized by law as a separate legal entity having rights of an individual.

  11. Forming a Corporation • Charter – a government document that gives permission to create a corporation. • Stock – ownership certificates in a corporation. • Stockholder – owners of stock in a corporation. • Dividend – a check representing a portion of corporate earnings.

  12. Advantages • Ease of raising financial capital. • Can sell stock. • Can borrow money by issuing bonds. • Bond – a written promise to repay an amount. • Can hire professional managers to run the firm • Provides limited liability for the owners.

  13. Disadvantages • Difficulty and expense of getting a charter. • Owners / shareholders have little say in how company is run.

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