Forms of Business
Organization
3 Basic forms of organization
1) Single Proprietorship
3 Basic forms of organization
1) Single Proprietorship

Form of business organization that places
full responsibility on a single owner
3 Basic forms of organization
1) Single Proprietorship

Form of business organization that places
full responsibility on a single owner
 It is the easiest type to organize
3 Basic forms of organization
1) Single Proprietorship

Form of business organization that places
full responsibility on a single owner
 It is the easiest type to organize
 Places responsibility on the owner
3 Basic forms of organization
1) Single Proprietorship

Form of business organization that places
full responsibility on a single owner
 It is the easiest type to organize
 Places responsibility on the owner
 Positives

Have power to make decisions
3 Basic forms of organization
Negatives

Prevents sharing of responsibility
3 Basic forms of organization
Negatives


Prevents sharing of responsibility
Subject to unlimited liability, which
allows courts to take the personal property
of owners to satisfy claims against firm
3 Basic forms of organization
Negatives



Prevents sharing of responsibility
Subject to unlimited liability, which
allows courts to take the personal property
of owners to satisfy claims against firm
Difficult to raise $, solely based on
personal wealth of the owner
3 Basic forms of organization
Negatives




Prevents sharing of responsibility
Subject to unlimited liability, which
allows courts to take the personal property
of owners to satisfy claims against firm
Difficult to raise $, solely based on
personal wealth of the owner
Limited Life, when the owner dies, so
does the business
3 Basic forms of organization
Partnership- a form of business
organization with two or more owners
3 Basic forms of organization
Partnership- a form of business
organization with two or more owners

This is the least common form
3 Basic forms of organization
Positives

Can raise more money
3 Basic forms of organization
Positives


Can raise more money
Can share responsibility while still having
power
3 Basic forms of organization
Negatives

Responsible for partner’s debt
3 Basic forms of organization
Negatives


Responsible for partner’s debt
Unlimited liability
3 Basic forms of organization
Negatives



Responsible for partner’s debt
Unlimited liability
Limited life
3 Basic forms of organization
Corporation- a form of business
organization that requires a
governmental charter granting them
specific powers
3 Basic forms of organization
Corporation- a form of business
organization that requires a
governmental charter granting them
specific powers

The most difficult to start
3 Basic forms of organization
Positives

Raise money through the sale of stock or
corporate bonds
3 Basic forms of organization
Positives

Raise money through the sale of stock or
corporate bonds
 Stock-part ownership of company
3 Basic forms of organization
Positives

Raise money through the sale of stock or
corporate bonds
 Stock-part ownership of company
 Corporate bond- a loan to a company
3 Basic forms of organization
Positives

Raise money through the sale of stock or
corporate bonds
 Stock-part ownership of company
 Corporate bond- a loan to a company
3 Basic forms of organization
Positives Con’t

Limited liability- individual owners
cannot be sued
3 Basic forms of organization
Positives Con’t


Limited liability- individual owners
cannot be sued
Unlimited life, corporation carries on even
if owner dies
3 Basic forms of organization
Negatives

Legal control of the corporation is
determined through voted stock
 Majority vote determines most major decisions
3 Basic forms of organization
The Costs of Production
3 Basic forms of organization
The Costs of Production

Fixed Costs-expenses that must be paid no
matter the quantity produced
3 Basic forms of organization
The Costs of Production

Fixed Costs-expenses that must be paid no
matter the quantity produced
 Ex. Mortgage, property tax
3 Basic forms of organization
The Costs of Production

Fixed Costs-expenses that must be paid no
matter the quantity produced
 Ex. Mortgage, property tax

Variable Costs- expenses that change with
the quantity produced
3 Basic forms of organization
The Costs of Production

Fixed Costs-expenses that must be paid no
matter the quantity produced
 Ex. Mortgage, property tax

Variable Costs- expenses that change with
the quantity produced
 Ex. Wages and raw materials
3 Basic forms of organization
Most new businesses underestimate
the fixed costs
3 Basic forms of organization
Most new businesses underestimate
the fixed costs

Causing them to under produce their
product, or sell at too low of a price
3 Basic forms of organization
Most new businesses underestimate
the fixed costs


Causing them to under produce their
product, or sell at too low of a price
One way to fix this is to sell more products
3 Basic forms of organization
Most new businesses underestimate
the fixed costs


Causing them to under produce their
product, or sell at too low of a price
One way to fix this is to sell more products
 Ex. If your fixed costs are $100 (rent, tax) and
you sell 100 items, your fixed cost per product
is $1
3 Basic forms of organization
Most new businesses underestimate
the fixed costs


Causing them to under produce their
product, or sell at too low of a price
One way to fix this is to sell more products
 Ex. If your fixed costs are $100 (rent, tax) and
you sell 100 items, your fixed cost per product
is $1
 Increase to 1000 products and your fixed cost
per product is $.10