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Forms of Business Organization
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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
