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1.02—Types of Business Organizations

1.02—Types of Business Organizations. Objective 1.02 Compare the main types of business organizations: Sole proprietorship, partnership, corporation, and franchise. Sole Proprietorship. Owned by one person Examples Floral shops Café Bakery Advantages Easy to start

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1.02—Types of Business Organizations

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  1. 1.02—Types of Business Organizations Objective 1.02 Compare the main types of business organizations: Sole proprietorship, partnership, corporation, and franchise

  2. Sole Proprietorship • Owned by one person • Examples • Floral shops • Café • Bakery • Advantages • Easy to start • Owner is his/her own boss • Owner keeps all profits • Disadvantages • Owner must pay for everything • Difficult to obtain capital to start • Owner might lack business skills • Unlimited liability—owner has full responsibility for company’s debts & can lose entire investment as well as personal assets

  3. Owned by two or more people Examples Law firms Medical practices Auto Body Repair Advantages Relatively easy to start Easier to obtain ($) capital than in a sole prop. Partners share skills & talents Partners share risks Disadvantages Partnership agreement needed Partners might not get along Partners share profits Partnership must reorganize if one quits Partners share unlimited liability—all partners share the responsibility of a bad decision made by one partner (including debts) Partnership

  4. Owned by many, but treated by law as one person Advantages Corporations can raise money by selling stock Limited liability—stockholders can only lose what they have invested Corporation continues when stockholders sell stock Corporation can always make money by selling more stock Examples Nike IBM Google Disadvantages Corporations taxed on their profits Close government regulation More difficult to start a corporation Must obtain a legal charter from state headquarters location Corporation

  5. Franchise contractual agreement to sell a company’s products /services in a specific area Advantages Easy to start Franchisee can rely on good name & expertise of parent company Franchisee can get needed guidance from franchisor Disadvantages Some franchisors are strict about how business is run Franchise is limited in what products/services can be sold Franchise must operate like every other franchise Examples Taco Bell Subway Arby’s Franchise

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