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Business Organizations

Business Organizations. Sole Proprietorships Chapter 8 Section 1. Business Organizations. Entrepreneurs make many decisions as they start up new businesses. One of the first decisions they face is what form of business organization best serves their interests.

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Business Organizations

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  1. Business Organizations Sole Proprietorships Chapter 8 Section 1

  2. Business Organizations • Entrepreneurs make many decisions as they start up new businesses. • One of the first decisions they face is what form of business organization best serves their interests. • Business Organization – is an establishment formed to carry on commercial enterprise

  3. Business Organizations • The business organization is a company or firm. • Sole Proprietorships are the most common forms of business organizations. • Sole Proprietorship – is a business owned and managed by a single individual.

  4. Business Organizations • Sole Proprietorship • Owned and run by one person • Generally smallest in size • Often the most profitable

  5. Business Organizations • Sole Proprietorship – Advantages 1. Easiest to form • No red tape/very few regulations involved • Conforms with the laws of owner • Must obtain a Business License – authorization from the local government. • Site Permit – must obtain a certificate of occupancy if you do not house out of your home. • If not using your name, must register the name of the business

  6. Business Organizations • Sole Proprietorship – Advantages 2. Ease of Management • Owner makes all decisions • May have to follow zoning laws – law in a city or town that designates separate areas for residency and for business. 3. Owner Keeps ALL Profits • Subject only to personal income taxation • No Company taxes are charged

  7. Business Organizations 4. Psychological • “I am the boss” • Has total control of the business. • Fast, Flexible, decision making allows sole proprietor to take advantage of sudden opportunities. 5. Easy to Discontinue * The Sole Proprietor can discontinue the business anytime they wish.

  8. Business Organizations • Sole Proprietorship – Weaknesses 1. Unlimited Liability • Owner is personally responsible for all losses and debts. • Owner’s personal possessions are at risk in a court judgment. 2. Difficult to Raise Capital • Banks look only at owner’s credit.

  9. Business Organizations • Sole Proprietorship – Weaknesses 3. Size & Efficiency • May lack sufficient scale to be profitable. • May not be able to carry sufficient inventory to compete with larger companies. • Inventory –a stock of finished goods and parts in reserve.

  10. Business Organizations • Sole Proprietorship – Weaknesses 4. Limited Managerial Experience 5. Difficult to Attract Qualified Employees Can’t offer their employees the fringe benefits that bigger businesses do. i.e. vacation pay, retirement pay, health insurance 6. Limited Life • The business ends when the owner dies.

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