Business Organizations

1. Business Organizations

2. Key Terms: • Economic Institutions – persons and organizations that use or represent the factors of production. • Business Organizations – a profit seeking enterprise that serves as the main link between scarce resources and consumer satisfactions.

3. Sole Proprietorship • Sole proprietorship = a business owned and run by one person. • Smallest in size but most businesses are sole proprietorships. • Easiest form of business to start! • Examples: Lemonade stand, babysitting service, work from home or an office space.

4. Strengths • Easy to start • Easy to manage • Do not have to share your profit! • Sole proprietorships do not pay business tax • Personal freedom because you are your own boss • Easy to get out of business

5. Weaknesses • Unlimited liability = The owner is personally and fully responsible for all losses and debts of the business. • Difficult to raise financial capital. • Businesses need to grow to be more efficient. • Limited managerial experience. • Difficult to attract qualified employees. Fringe benefits are scare, like health insurance. • Limited life – when the proprietor dies the business dies.

6. What are some examples of sole proprietorships that you can think of in your community?

7. Partnerships • A partnership = a business jointly owned by two or more persons. • General partnership = all partners are responsible for the management and financial obligations of the business. • Limited Partnership = one or more partners are not active in the daily running of the business but contributed to funds to finance the operation.

8. Forming a partnership • Articles of partnership = Legal papers that negotiate the terms of the partnership • Articles of partnership discuss how money will be distributed, how more partners can be taken on, how the property will be distributed if the partnership ends.

9. Strengths • Easy to establish. • Easy to manage. • Lack of special taxes that partners have to pay. • Attract financial capital faster than sole proprietorships, better chance to get loans. • Slightly larger than a sole proprietorship. • Partnerships are more likely to attract good employees than proprietorships.

10. Weaknesses • Each partner is responsible for the actions of the other partners. • In limited partnerships, the limited partner has “limited liability” because they are not as involved in the business. • Limited life because when the partners die, add another partner or sell the business, the business ceases to exist legally. • Potential conflict between partners.

11. What are some examples of partnerships that you can think of in your community?

12. Corporations