Types of Business
CH. 22, SECTION 1
4 Elements of Business
Expenses
1.
•
What you need to start & continue a business
Advertising
2.
•
Introduction and reminder of your business
Receipts & Record Keeping
3.
•
Needs to be accurate and dependable – for
profits & losses
Risk (profit vs. loss)
4.
•
Risk is a consequence to the advantage of
being in business
Considerations When Starting a Business
 Establishment of
inventory
 Use of
computers/Technology
 Turbo Tax
 Time – the opportunity
cost. You could be
working for someone
else.
3 Types of Businesses
1. Sole Proprietorship
•
Owned by 1 person
•
Easy & relatively
inexpensive to start
would be a need
•
Small businesses
typically
•
Most common form of
business
•
Owner receives all profits
•
Unlimited Liability
Sole Proprietorship
Advantages
 Receive all profits
 Quick decisions because
no consultation
 Relatively low taxes
Disadvantages
 Unlimited liability
 Handle all decisions
 Time consuming
 Rely on own funds
 Business depends on one
person
3 Types of Businesses cont.
2. Partnership
•
•
•
Owned by 2 or more individuals
Articles of Partnership – Partners sign an
agreement on what each is responsible for.
Limited Partnership
o
o
o
o
•
Partners are not equal
General Partner – majority of control
Limited Partner – own a small part – do not voice
opinions & are responsible only for what they put in
LLPs (Limited Liability Partnerships) [mix of
corporations and partnerships): Very popular with
lawyers, accountants, and architects.
Joint Venture
o
temporary partnership to do a job
Partnership
Advantages
 Losses are shared
 More efficient than
proprietorships
 Pay taxes on share of
profit
 Easier to borrow money
Disadvantages
 Profits are shared
 Unlimited liability, most
of the time
 Must reach agreements
 Committed partners
3 Types of Businesses cont.
3. Corporation
 Owned by many
 Started by a founder
 Owned by Stockholders
 Run by a Board of Directors
 State government issues a charter to run the business
 Complicated structure
 Business has the same rights as an individual
 Are Double Taxed
 Founder’s responsibilities



Register with the state government for a charter
Sell Stock
Select the initial Board of Directors
 Board of Director’s responsibility
 Elected by Stockholders
 Supervise & control the corporation
 Make all major decisions
Corporations
Advantages
 Owners do not have to
devote time to make
money.
 Stockholders have limited
liability; they only lose
what they put in.
 Individuals trained in
specific areas make
decisions.
Disadvantages
 Decisions are slow.
Interest of the board may
differ from the
stockholders.
 Double taxation. Govt.
taxes corporate profit than
individual shares.
 Stockholders have little or
no say in how business is
run.
Stocks and Bonds
 Stock: Individual
ownership in a
corporation.
Shareholder receives
voting rights and
dividends.
 Bond: Promise by a
corporation to pay a
stated amount of
interest over a period
of time.
Other Types of Businesses
 Franchise – sell the name & structure of a business
Help train employees & set up the business
 Franchisee – pays a start up fee & annual fee
 Non – Profit – business does not run to make
money
 Cooperative – individual businesses that work
together to benefit all members
 Producer – Ex: Farmer’s Market
 Consumer – Ex: PCC Natural Markets, REI
 Service – Ex: Credit Unions, Utility companies
