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Forms of Business Organization

Forms of Business Organization. Sole Proprietorships. A business that is owned and operated by a single individual Sole proprietorships are ready for business as soon as they set up operations The most common form of business organization in the US is a sole proprietorship.

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Forms of Business Organization

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  1. Forms of Business Organization

  2. Sole Proprietorships • A business that is owned and operated by a single individual • Sole proprietorships are ready for business as soon as they set up operations • The most common form of business organization in the US is a sole proprietorship

  3. Sole Proprietorships • Advantages • Easiest form of business to start • Decisions do not require approval from ‘higher up’ • Keep all profits • Does not pay separate business income taxes • Psychological factor of being own boss • Easy to get out of business

  4. Sole Proprietorships • Disadvantages • Owner has unlimited liability • Difficult to raise capital • Size and efficiency • Cost of carrying minimum inventory • Often has limited managerial skills • Difficult to attract qualified employees • Larger employers can offer more

  5. Partnership • Business that is jointly owned by two or more persons • General Partnership – all partners are responsible for management and financial obligations • Limited Partnership – at least one partner is not active in the daily running of the business • Least numerous form of business in the US

  6. Partnership • Advantages • Ease of startup • Formal legal papers called ‘articles of partnership’ are usually written • Ease of management/varied expertise • Lack of special taxes • Easier to attract capital investments than sole proprietorship • More efficient • Easier to find good employees

  7. Partnership • Disadvantages • In a general, each partner is responsible for acts of all partners • In a limited, if the limited partner loses their investment, the other partners must make up the loss • Potential for conflict between partners

  8. Corporations • Form of business organization recognized by law as a separate legal entity with all the rights of an individual • Gives corporations the right to buy and sell property, enter into legal contracts, and to sue and be sued • Accounts for about one fifth of businesses, but is responsible for the majority of all sales

  9. Corporations • Forming a Corporation • Must file for permission with the national government • If approved, a charteris granted, which is a document giving permission to create a corporation • Charter specifies the number of shares of stock to be sold

  10. Corporations • Advantages • Ease of raising money • Owners have limited liability • Directors can hire professional managers to run daily operations • Ease of transferring ownership

  11. Corporations • Disadvantages • Detailed records need to be kept for payment of taxes • Double taxation of corporate profits • Difficulty and expense to get a corporate charter • Owners or shareholders have little voice in business operations • Subject to more government regulations

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