Business Organization

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 a business run by one person smallest type of business organization most numerous but least profitable

Advantages of a Sole Proprietorship
 ease of start-up
 ease of management
 owner gets all the profits
 taxes paid only on the owner’s personal income
 psychological satisfaction of owning one’s business/ having control
 ease of closing the business

Disadvantages of a sole proprietorship
 owner has unlimited liability – owner is personally and fully responsible for all losses and debts of the business
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Limited funds owner may not be able to hire enough personnel or keep inventory
 limited managerial experience
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 hard to attract qualified employees business has limited life – firm legally ceases to exist when the owner dies or sells the business.

 Mary Kay Ash – Mary Kay Inc.
 Was passed up for a promotion, decided to start own business to reward women
 By 2005 was a global company with $2 billion in sales

 Pg. 231 #’s 2-5
 Write the question!

Partnerships

 business jointly owned by two or more persons.
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Types: general partnership – all partners are responsible for the mgmt and financial obligations limited partnership – at least one partner is not active in the daily running of the business.

 Limited liability partnership (LLP) – all partners are limited and not responsible for debts or liabilities of other partners

Advantages of a Partnership
 ease of start-up
 ease of mgmt
 lack of special taxes
 easier to raise capital through bank loans or new partner
 larger size aids efficient operations
 easier to attract talented employees

Disadvantages
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Unlimited liability - partners are responsible for the acts of every partner except in a limited partnership limited life - if a partner leaves or dies it must be dissolved and reorganized potential for conflict

 Law firms
 Accounting firms
 Doctors offices
 Interesting fact: most partnerships bring in less than $25,000 a year

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A business owned by stock-holders
Stockholders/shareholders – investors who become owners of the firm
If profitable, may pay dividends

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 ease of raising capital professionals usually run firm owners have limited liability
Unlimited life of corp.
Easy to transfer ownership (buying/selling stock)

Disadvantages of a corporation
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Start-up cost/effort
Little control of business double taxation subject to gov’t regulation

 Horizontal merger – produce same product Ex: two banks; Reebok and
Adidas
 Vertical merger – different steps of production Ex: car co and tire co;
 Conglomerate – 4 or more merge that are unrelated

 Business that licenses rights to sell it’s products to individual owners
 Examples: McDonald’s, KFC/Taco Bell,
Subway

 Provides good training and products
 Pays for advertising

 Can be expensive
 Share profits
 Have to follow rules

 Aims to benefit society
 Examples: schools, churches, Salvation
Army, Red Cross

 Operated for benefit of owners who are also customers
 3 Types: Consumer, Producer, Service

Word bank for Quiz on Ch. 8!!!!
Sole proprietorship
Partnership
Corporation
Stock
Cooperative
Conglomerate
Franchise
Unlimited liabililty
Unlimited life
Multinational
Bond
Non-profit organization
Horizontal merger
Vertical merger
Limited liability