Sole Proprietorships
• What role do sole proprietorships
play in our economy?
• What are the advantages of a sole
proprietorship?
• What are the disadvantages of a
sole proprietorship?
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The Role of Sole Proprietorships
• A business organization is an
establishment formed to carry on
commercial enterprise.
• Sole proprietorships are the most
common form of business
organization.
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The Role of Sole Proprietorships
• Owned and managed by a single
individual.
• Most are small.
• Generate only about 6% of all US
sales.
• Most earn modest incomes.
• Many are run part-time.
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Characteristics of Proprietorships
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Advantages of Sole Proprietorships
1. Ease of Start-Up
• Small amount of paperwork and
legal expenses.
2. Relatively Few Regulations
• The least-regulated form of
business organization.
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Advantages of Sole Proprietorships
3. Sole Receiver of Profit
• After paying taxes, the owner
keeps all the profits.
4. Full Control
• Can run their businesses as they
wish.
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Advantages of Sole Proprietorships
5. Easy to Discontinue
• Pay off taxes and debt, stop doing
business.
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Disadvantages of Sole Proprietorships
• Limited access to resources such
as physical and human capital.
• Lack permanence. Whenever an
owner closes shop, the business
ceases to exist.
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Disadvantages of Sole Proprietorships
• The biggest disadvantage is
unlimited personal liability.
Liability is the legally bound
obligation to pay debts.
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Section 1 Review
1. What is a sole proprietorship?
2. What is an advantage of a sole
proprietorship?
3. What is a disadvantage of a sole
proprietorship?
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Partnerships
• What types of partnerships exist?
• What are the advantages of
partnerships?
• What are the disadvantages of
partnerships?
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Partnerships
• Account for 7% of all businesses
• 5% of sales
• 10% of income
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Types of Partnerships
Three types of partnerships:
1. General Partnership
–partners share equally in both
responsibility and liability.
2. Limited Partnership
–only one partner is required to
be a general partner, or to have
unlimited personal liability for
the firm.
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Types of Partnerships
Three types of partnerships:
3. Limited Liability Partnership
–A newer type of partnership, all
partners are limited partners.
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Advantages of Partnerships
1. Ease of Start-Up
No required agreement, but
usually develop articles of
partnership.
2. Shared Decision Making and
Specialization
Bring different strengths and
skills to the business.
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Advantages of Partnerships
3. Larger Pool of Capital
Each partner's assets improve the
firm's ability to borrow funds.
4. Taxation
Individual partners are subject to
taxes, but the business itself does
not have to pay taxes.
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Advantages of Partnerships
– Articles of partnership spells
rights and responsibilities of each
partner.
- Uniform Partnership Act – state
law that establishes rules of
partnership.
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Disadvantages of Partnerships
• Unless it is a limited liability
partnership (LLP), at least one
partner has unlimited liability.
• General partners are bound by
each other’s actions.
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Disadvantages of Partnerships
• Potential for conflict.
Partners need to ensure that they
agree about work habits, goals,
management styles, ethics, and
general business philosophies.
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Section 2 Review
1.What advantage does a
partnership have over a sole
proprietorship?
• How is a general partnership
organized?
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Corporations, Mergers, and Multinationals
• What types of corporations exist?
• What are the advantages of
incorporation?
• What are the disadvantages of
incorporation?
• How can corporations combine?
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Types of Corporations
• A corporation is a legal entity
owned by individual stockholders.
• Stocks, or shares, represent a
stockholder’s portion of ownership
(equity) of a corporation.
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Types of Corporations
• Closely held corporation - issues
stock to a limited a number of
people.
• A publicly held corporation - buys
and sells its stock on the open
market.
• 20% of businesses, 90% of sales,
70% of net income
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Advantages of Incorporation
Advantages for the Stockholders
• Individual investors do not carry
responsibility for the
corporation’s actions.
• Shares of stock are transferable,
which means that stockholders
can sell their stock to others for
money.
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Advantages of Incorporation
Advantages for the Corporation
• More potential for more growth.
• Corporations can borrow money by
selling bonds.
• Corporations can hire the best
available labor.
• Corporations have long lives.
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Disadvantages of Incorporation
1. Difficulty and Expense of Start-Up
Corporate charters - expensive and
time consuming
Certificate of incorporation - state
license is required
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Disadvantages of Incorporation
2. Double Taxation
Corporations pay taxes on their
income.
Owners also pay taxes on
dividends.
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Disadvantages of Incorporation
3. Loss of Control
Managers and boards of directors,
not owners, manage corporations.
4. More Regulation
More regulations than other kinds
of business organizations.
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Corporate Combinations
• Horizontal mergers combine two or
more firms, in same market, same
good or service.
• Vertical mergers combine two or
more in different stages of
producing the same good or service
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Corporate Combinations
• Conglomerate - business
combination merging more than
three businesses that make
unrelated products.
• No single business contributing a
majority of the of the revenue.
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Multinationals
Multinational corporations (MNCs)
are large corporations
headquartered in one country that
have subsidiaries throughout the
world.
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Multinationals
Advantages of MNCs
• Benefit consumers by offering
products worldwide.
• Spread new technologies and
production methods.
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Multinationals
Disadvantages of MNCs
• Some feel MNCs influence culture
and politics.
• Concern about wages and
working conditions.
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Section 3 Review
1.Name some advantages of
incorporation.
2.How do horizontal and vertical
mergers differ?
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Other Organizations
• How do business franchises work?
• What are the three types of
cooperative organizations?
• What are nonprofit organizations?
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Business Franchises
Business franchise
Semi-independent business
- pays fees to a parent company
- exclusive right to sell a certain
product or service in a given area.
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Business Franchises
• Franchisers develop products and
services.
Local franchise owners help to
produce and sell those products.
• Franchises allow owners a degree
of control, as well as support from
the parent company.
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Advantages and Disadvantages of
Business Franchises
Advantages of Business Franchises
•Management training and support
•Standardized quality
•National advertising programs
•Financial assistance
•Centralized buying power
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Advantages and Disadvantages of
Business Franchises
Disadvantages of Business
Franchises
•High franchising fees and royalties
•Strict operating standards
•Purchasing restrictions
•Limited product line
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Cooperatives
Cooperative - business
organization owned and operated
by a group for their shared benefit.
1. Consumer Cooperatives
–Retail outlets owned and
operated by consumers.
–Sell their goods to their members
at reduced prices.
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Cooperatives
2. Service Cooperatives
–Provide a service, rather than
goods.
3. Producer cooperatives
–agricultural marketing
cooperatives that help members
sell their products.
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Nonprofit Organizations
Professional Organizations
work to improve the image, working
conditions, and skill levels of people
in particular occupations.
Business Associations
promote the business interests of a
city, state, or other geographical
area, or of a group of similar
businesses.
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Nonprofit Organizations
Trade Associations
promote the interests of particular
industries
Labor Unions
organized group of workers whose aim is
to improve working conditions, hours,
wages, and fringe benefits
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Section 4 Review
1. What is a business franchise?
2. What is a consumer cooperative?
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