22.1 Types of Businesses

Proprietorships

A sole proprietorship, or proprietorship is a business owned and operated by a single person; it is the most common business type

Proprietorships

AdvantagesThe proprietor has

pride in owning the business and gets all the profits; they make decisions quickly without having to consult a boss; pay no corporate income tax

Proprietorships DisadvantagesProprietor has

unlimited liability, or complete legal responsibility for all debts and damages arising from doing business

If the business has debt the owner’s personal assets, such as houses, cars, and jewelry, may be seized to pay the debts

Proprietorships

It is also difficult for proprietors to raise financial capital, the money needed to run a business or enable it to grow larger

Another disadvantage is attracting qualified employees, many high school and college graduates are more likely to be attracted to larger firms

Partnerships A partnership is a business that two or more

people own

Partnerships

The articles of partnership, identify how much money each partner will contribute and what role they will play in the business

It clarifies how partners will share the profits or losses and describes how to add or remove partners, or break up the business

Partnerships

The most common form of partnership is a general partnership where all partners are responsible for the management and financial obligations

In a limited partnership, at least one partner is not active in the daily running of the business, although they may have contributed funds to finance the operation

Partnerships

AdvantagesPride of sharing ownership in a business;

there are multiple owners so they can raise more money

If money cannot be borrowed, the partners can take in new partners to provide funds; partnerships also pay no corporate income tax

Each owner can bring special talents to the business; another advantage is the slightly larger size which makes for more efficient operations

Partnerships DisadvantagesThe legal structure is

complex; when a partner is added or removed, a new agreement has to be made

The main disadvantage is the owners have unlimited liability, each owner is fully responsible for all debts of the partnership

Corporations

The corporation is an organized business recognized by law that has many of the rights and responsibilities of an individual

A corporation can do anything a person can do-own property, pay taxes, sue or be sued- except vote (1/5 of all businesses)

Corporations

A charter is a government document granting permission to organize; it includes the name, purpose, address, and other features of the business

It also specifies the amount of stock, or ownership shares of the corporation, that will be issued

Corporations

The people who buy this stock, the stockholders, become part owners of the corporation; it uses the money received from stock to run the business

Stockholders elect a board of directors to act on their behalf; they hire managers to run the corporation on a daily basis

B&O Railroad Stock Certificate

Wal-Mart Board of Directors

Corporations

AdvantagesThe first advantage is the ease of raising

financial capital, it if needs more money it can sell stock; it is also easier to borrow large sums of money

Raising large amounts of capital allows corporations to grow to be huge; they employ thousands of workers and carry out business around the world

Corporations

The board of directors can hire professional managers to run the business; if they do not succeed they can be replaced

Ownership can easily be transferred by selling stock and a corporation has limited liability only the corporation is responsible for its debt

Corporations

DisadvantagesThey are expensive and

complex to set up, owners have very little say in the management of the business; they are also under more regulation by the government

Stockholders are subject to double taxation or paying taxes twice on corporate profits; the corporation must pay a tax and stockholders do as well

Other Business Organizations

Some organizations operate on a “not-for-profit” basis; examples include churches, hospitals, and social service agencies

Other Business Organizations

A cooperative is a voluntary association of people formed to carry on an economic activity that benefits members

Consumer cooperatives buy bulk goods on behalf of members, service cooperatives provide services, producer cooperatives help promote or sell products