CHAPTER 7
TYPES OF BUSINESS ORGANIZATIONS
SOLE
PROPRIETORSHIP
A type business is owned and
controlled by one person.
• These are usually small businesses in
which the enterprises require a small
amount of capital.
• There is one person in charge of
overseeing every business operation.
ADVANTAGES OF SOLE
PROPRIETORSHIPS
• Ease of start-up
• Full control over the company
• Exclusive rights to profits
DISADVANTAGES OF SOLE PROPRIETORSHIPS
Unlimited liability
• Sole proprietors are responsible for all business debts
• Liability- responsible for debt
Sole Responsibility
• Owner has a plethora of responsibilities
Limited growth potential
• When a business is started out small, it is difficult to get enough revenue to
vastly expand
• Collateral- anything a borrower gives up if he or she is not able to repay a
loan
Lack of longevity (or life of business operation)
• If the sole proprietor is unable to work or loses interest in the business then
the business might fail
PARTNERSHIPSSECTION 2
Business that is controlled by
two or more people is a
partnership
• Two or more people work
together and oversee the entire
business.
• “General Partnership”partners enjoy equal
decision making powers
between them
• “limited partnership”partners join as investors
who provide financial capital
in exchange for a share of
the profits while another
partner oversees the
operations
ADVANTAGES OF PARTNERSHIPS
Ease of start-up
• Easy to start up with more people
Specialization
• Each person can contribute to the company with a specialized task
• This allows for people to work in areas that they are most comfortable.
Shared decision making
• Help make smart decisions together
• With more than one mind on an issue, better solutions can be discovered for
problems or conflicts
Shared business losses
• When the business fails, the partnership can work together to bring the
business back up.
• The debt or losses can be divided over several people instead of just one
person
DISADVANTAGES OF
PARTNERSHIPS
Unlimited liability
• Partners are responsible for all debt of the company,
similar to a sole proprietorship
Potential for conflict
• With more than one mind working on the business, there is
the possibility of conflict between partners
Lack of longevity
• If partners disband or lose interest, the company will either
need to be sold or will dissolve
CORPORATIONSSECTION 3
A business in which a group of
owners, called stockholders,
share in the profits and losses
is a corporation.
• Owned by shareholders
• A share is a piece of stock
in the company
• The person who owns the
most stock is the majority
shareholder
• Dividends- profits paid to you
as a shareholder
STOCKS AND BONDS
Common Stock- provides shareholders with a voice in how the
company is run and a share in any potential dividends
Preferred Stock- provides guaranteed dividends, but does not
grant shareholders a voice in running the corporation
A BOND is a certificate issued by the corporation in exchange for
money borrowed from an investor
• Indicates that the corporation owes you money
Principal is the amount of money that was borrowed from you
• Interest is the money that the corporation must pay for the
use of your money
OTHER FORMS OF ORGANIZATIONSECTION 4
Corporate Combinations
• Merger-when one company joins with or absorbs another
• Horizontal- when two or more companies producing the same
good or service merge
• Vertical- two or more companies in different production
phases merge
• Conglomerate- merger of companies producing unrelated
product
OTHER COMPANIES
Franchises
• One company agrees to let another person or group open up a branch in
the company name, for a fee
Cooperatives (CO-OP)
• Businesses that are owned collectively by their members
Nonprofit organizations
• Works like a business to provide goods and services while pursuing goals