Business OrganizationsChevalier

Spring 2015

Sole Proprietorships

A business owned and run by one person

Most numerous and profitable of three business types we’ll be talking about

Smallest in size; earn about 1/6 of the net income earned by all businesses

Sole Proprietorships

Almost no start-up costs except for a license

Can be ran out of your house, over the internet, or from an office

Sole Proprietorship

Advantages Disadvantages

1. Ease of start up

2. Ease of management

3. Don’t have to share profits

4. No separate business income taxes

5. Psychological satisfaction

6. Ease of getting out of business

1. Owner has UNLIMITED LIABILITY

2. Difficulty in raising financial capital (debt, loans)

3. Size and efficiency (employees and inventory vs. limited capital)

4. Limited managerial experience

5. Difficulty of attracting qualified employees

6. LIMITED LIFE

Partnership

A business jointly owned by two or more persons

Least numerous in terms of numbers of firms

General partnership vs. limited partnership (active in daily running)

Partnership

Relatively easy to start

Lawyers have to get involved› Profits› Debts› Death of one partner› End of partnership

Partnerships

Advantages Disadvantages

1. Ease of establishment

2. Ease of management (different talents)

3. Lack of special taxes

4. Easier to attract financial capital because of size)

5. Larger size

6. Easier to attract talented employees (offer specialized services)

1. Each partner is fully responsible for acts of all partners

2. Limited partners only lose initial investment; rest of outstanding debt falls to other owner(s)

3. Potential conflict between partners

Corporations

Very formal and legal arrangement People who want to incorporate must

ask permission from the government. If approved, a CHARTER is granted

› Gov’t. document granting permission› Specifies number of shares of stock that

can be sold› Sold to stockholders, or shareholders, can

lead to dividends

Corporations

Advantages Disadvantages

1. Ease of raising financial capital (sell stock, bonds (principal and interest))

2. Directors of a corp. can hire managers to run the firm

3. Limited liability to owners

4. Unlimited life

5. Ownership can change easily

1. Difficulty and expense of getting a charter

2. Owners have little say after they have voted for board of directors

3. Must keep detailed records/treated as a person; a separate entity

4. Heavy government regulation