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CH. 9: Business Organizations

CH. 9: Business Organizations. Sole Proprietorships Partnerships Corporations and Franchises. ENTREPRENEUR:. Person willing to take the risk and start a business. SOLE PROPRIETORSHIP. “Proprietor” = OWNER of PROPERTY Most basic type Most common. ADVANTAGES of SOLE PROPRIETORSHIP.

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CH. 9: Business Organizations

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  1. CH. 9: Business Organizations Sole Proprietorships Partnerships Corporations and Franchises

  2. ENTREPRENEUR: • Person willing to take the risk and start a business

  3. SOLE PROPRIETORSHIP • “Proprietor” = OWNER of PROPERTY • Most basic type • Most common

  4. ADVANTAGES of SOLEPROPRIETORSHIP • Owner gets ALL the profits & ALL the PRIDE • Owner gets to “call the shots” --makes all decisions --quick • Less complicated • Fewer government regulations • Personal income taxes often lower than corp. taxes • Lenders are more willing to extend credit because of UNLIMITED LIABILITY of sole owner

  5. KEY TERMS: • ASSETS: What you OWN! • LIABILITIES: What you OWE!

  6. DISADVANTAGES of SOLEPROPRIETORSHIP • UNLIMITED LIABILITY --complete legal responsibility for all debts and damages --lose house, car, savings, etc., as well as business (personal as well as business ASSETS) • Owner has to make all the decisions even in areas which are out of his expertise • Demanding & time consuming • Borrowing large amounts = harder because of limited assets • Business closes if owner dies, goes bankrupt, or is unwilling or unable to work

  7. PARTNERSHIP • A business that two or more individuals own and operate

  8. LIMITED PARTNERSHIP • Special form of partnership • GENERAL PARTNER: --manages firm --has full responsibility for firm’s debt • LIMITED PARTNER: --supplies money or property --has no voice in management • Certificate of Partnership: (minimum info) co. name, nature of business, principal place of business, names and addresses of each partner, how long partnership will last, amount contributed by each partner

  9. JOINT VENTURE • A temporary partnership • Set up for a specific purpose • For a short period of time

  10. ADVANTAGES of PARTNERSHIPS • Losses are shared • Greater efficiency with each partner working in his area of expertise • Personal income taxes may be lower than corporate taxes • PRIDE in ownership • Combines CAPITAL of two or more, thus, makes more $ available to operate a larger business • Creditors may be willing to lend more money because risk is shared

  11. DISADVANTAGES of PARTNERSHIPS • Must SHARE PROFITS • UNLIMITED LIABILITY (responsible if partner can’t pay!) --complete legal responsibility for all debts and damages --lose house, car, savings, etc., as well as business (personal as well as business ASSETS) • Slower decision making (consensus) • Disagreements lead to problems • Borrowing large amounts = harder because of limited assets • Business closes if one partner dies, leaves, or is unwilling or unable to work (uncertainty = risk for creditor)

  12. CORPORATION • An organization owned by many people (stockholders) • Treated as a PERSON under the LAW; can • Own property • Pay taxes • Make contracts • Sue and be sued

  13. ARTICLES of INCORPORTATION • Filed with STATE in order to obtain a CORPORATE CHARTER (a license to operate from that state) • Includes: • Name, address, & purpose of corp. • Names & addresses of bd. of directors • Number of shares of stock to be issued • Amount of money capital to be raised through issuing stock

  14. INFO. on STOCKS • Types • Benefits and risks • Primary and Secondary Markets COMING SOON !!! We’ll cover these when we talk about FINANCING A BUSINESS!

  15. ADVANTAGES of CORPORATIONS • Owners don’t have to spend TIME to earn $$$ • LIMITED LIABILITY: The corp., not its stockholders, is responsible for its debts. Creditors cannot take stockholders’ personal property! • MANAGEMENT = divided among trained personnel; allows for large & complex operations • PRIDE in ownership of stock • FINANCING GROWTH: issue stock to raise CAPITAL • PERPETUAL EXISTENCE: Corp. can continue as long as profitable; not affected by death of stockholders

  16. DISADVANTAGES of CORPORATIONS • DECISION MAKING can be slow and complicated • MANAGEMENTS’ interests and the STOCKHOLDERS’ interests aren’t always the same • Federal gov’t and some state & local govt’s TAX CORPORATE PROFITS • Profits paid to stockholders as dividends are taxes again as income • Some states tax CORPORATE PROPERTY • Owners (STOCKHOLDERS) have little say in how the corporation is run

  17. FRANCHISE • A contract in which a FRANCHISOR sells to another business (FRANCHISEE) the right to --use its name (and advertising) --sell its products --use its business model & methods or training program • FRANCHISEE pays fee which may include a percentage of all $$$ taken in • EX.: McDonalds & McAllister’s Deli

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