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Business Organizations

This section delves into different forms of business organizations, focusing on sole proprietorships, partnerships, and corporations. Sole proprietorships are the easiest to establish, offering full control and simplicity, but they come with unlimited liability. Partnerships enable shared management and capital raising, but partners are liable for each other's actions. Corporations, recognized as separate legal entities, enjoy limited liability and easier capital acquisition, yet face complexities in formation and operations. Each structure has distinct advantages and disadvantages for prospective business owners.

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Business Organizations

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  1. Business Organizations Chapter 3

  2. Chapter 3, Section 1 Forms of business organizations

  3. Sole Proprietorship • Sole Proprietorship • A business owned and run by one person. • Most numerous and profitable • Smallest in size. • Forming a Proprietorship • Easiest to start up • Involves almost no requirements except for occasional business licensees or fees. • Example: Lemonade Stand / restaurant

  4. Advantages • Ease of starting up • Relative ease of management • Owner does not have to share profit or success with other owners. • Does not have to pay separate business taxes because the business is not a separate entity. • Psychological satisfaction. • Ease of getting out of business.

  5. Disadvantages • Unlimited Liability – The owner is personally and fully responsible for all the losses and debts of the business. • Difficulty in raising financial capital. • Size and efficiency. • Difficulty in obtaining minimum inventory • A stock of finished goods and parts in reserve.

  6. Partnerships • Partnership – a business jointly owned by two or more persons. • Shares many of the strengths and weaknesses of a sole proprietorship.

  7. Types of Partnerships • General Partnership • Most common form. • All partners are responsible for the management and financial obligations of the business. • Limited Partnership • At least one partner is not active in the daily running of the business. • Contributes funds or finances.

  8. Advantages • Ease of establishment. • Ease of management. • Can usually attract financial capital more easily than proprietorships.

  9. Disadvantages • Each partner is fully responsible for the acts of the other partners. • Limited Partnerships • Limited liability. • The investors responsibility of debt is limited by the size of their investment in the firm.

  10. Corporations • Corporation – a form of business organization recognized by law as a separate legal entity having rights of an individual.

  11. Forming a Corporation • Charter – a government document that gives permission to create a corporation. • Stock – ownership certificates in a corporation. • Stockholder – owners of stock in a corporation. • Dividend – a check representing a portion of corporate earnings.

  12. Advantages • Ease of raising financial capital. • Can sell stock. • Can borrow money by issuing bonds. • Bond – a written promise to repay an amount. • Can hire professional managers to run the firm • Provides limited liability for the owners.

  13. Disadvantages • Difficulty and expense of getting a charter. • Owners / shareholders have little say in how company is run.

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