Forms of Business Organization

3 Basic forms of organization

1) Single Proprietorship

3 Basic forms of organization

1) Single Proprietorship Form of business organization that

places full responsibility on a single owner

3 Basic forms of organization

1) Single Proprietorship Form of business organization that

places full responsibility on a single owner It is the easiest type to organize

3 Basic forms of organization

1) Single Proprietorship Form of business organization that

places full responsibility on a single owner It is the easiest type to organize Places responsibility on the owner

3 Basic forms of organization

1) Single Proprietorship Form of business organization that

places full responsibility on a single owner It is the easiest type to organize Places responsibility on the owner Positives

Have power to make decisions

3 Basic forms of organization

Negatives Prevents sharing of responsibility

3 Basic forms of organization

Negatives Prevents sharing of responsibility Subject to unlimited liability, which

allows courts to take the personal property of owners to satisfy claims against firm

3 Basic forms of organization

Negatives Prevents sharing of responsibility Subject to unlimited liability, which

allows courts to take the personal property of owners to satisfy claims against firm

Difficult to raise $, solely based on personal wealth of the owner

3 Basic forms of organization

Negatives Prevents sharing of responsibility Subject to unlimited liability, which

allows courts to take the personal property of owners to satisfy claims against firm

Difficult to raise $, solely based on personal wealth of the owner

Limited Life, when the owner dies, so does the business

3 Basic forms of organization

Partnership- a form of business organization with two or more owners

3 Basic forms of organization

Partnership- a form of business organization with two or more owners This is the least common form

3 Basic forms of organization

Positives Can raise more money

3 Basic forms of organization

Positives Can raise more money Can share responsibility while still

having power

3 Basic forms of organization

Negatives Responsible for partner’s debt

3 Basic forms of organization

Negatives Responsible for partner’s debt Unlimited liability

3 Basic forms of organization

Negatives Responsible for partner’s debt Unlimited liability Limited life

3 Basic forms of organization

Corporation- a form of business organization that requires a governmental charter granting them specific powers

3 Basic forms of organization

Corporation- a form of business organization that requires a governmental charter granting them specific powers The most difficult to start

3 Basic forms of organization

Positives Raise money through the sale of

stock or corporate bonds

3 Basic forms of organization

Positives Raise money through the sale of

stock or corporate bondsStock-part ownership of company

3 Basic forms of organization

Positives Raise money through the sale of

stock or corporate bondsStock-part ownership of companyCorporate bond- a loan to a company

3 Basic forms of organization

Positives Raise money through the sale of

stock or corporate bondsStock-part ownership of companyCorporate bond- a loan to a company

3 Basic forms of organization

Positives Con’t Limited liability- individual owners

cannot be sued

3 Basic forms of organization

Positives Con’t Limited liability- individual owners

cannot be sued Unlimited life, corporation carries on

even if owner dies

3 Basic forms of organization

Negatives Legal control of the corporation is

determined through voted stock Majority vote determines most major

decisions

3 Basic forms of organization

The Costs of Production

3 Basic forms of organization

The Costs of Production Fixed Costs-expenses that must be

paid no matter the quantity produced

3 Basic forms of organization

The Costs of Production Fixed Costs-expenses that must be

paid no matter the quantity produced Ex. Mortgage, property tax

3 Basic forms of organization

The Costs of Production Fixed Costs-expenses that must be

paid no matter the quantity produced Ex. Mortgage, property tax

Variable Costs- expenses that change with the quantity produced

3 Basic forms of organization

The Costs of Production Fixed Costs-expenses that must be

paid no matter the quantity produced Ex. Mortgage, property tax

Variable Costs- expenses that change with the quantity produced Ex. Wages and raw materials

3 Basic forms of organization

Most new businesses underestimate the fixed costs

3 Basic forms of organization

Most new businesses underestimate the fixed costs Causing them to under produce their

product, or sell at too low of a price

3 Basic forms of organization

Most new businesses underestimate the fixed costs Causing them to under produce their

product, or sell at too low of a price One way to fix this is to sell more

products

3 Basic forms of organization

Most new businesses underestimate the fixed costs Causing them to under produce their

product, or sell at too low of a price One way to fix this is to sell more

products Ex. If your fixed costs are $100 (rent,

tax) and you sell 100 items, your fixed cost per product is $1

3 Basic forms of organization

Most new businesses underestimate the fixed costs Causing them to under produce their

product, or sell at too low of a price One way to fix this is to sell more

products Ex. If your fixed costs are $100 (rent,

tax) and you sell 100 items, your fixed cost per product is $1

Increase to 1000 products and your fixed cost per product is $.10