Types of Businesses
Topic # 4014
Nick Thompson
4 Types of Business Structures
- Sole Proprietorship
- Partnership
- Cooperatives
- Corporations
Sole Proprietorship
• Controlled and owned and operated by
individual
• Can buy or start business
• Profits are used as owner sees fit
• Business built by personal capital
Sole Proprietorship Advantages
• Low Start up cost
• Tax advantages to small owner
• In direct control of business
• Minimal working capital requirements
• Little government Regulation
• Profits go to owner
Sole Proprietorship Disadvantages
• Difficult to raise capital without incurring
large debt
• Owner is 100% financially liable
Partnership
• Controlled and owned and operated by 2 or
more individuals
• Can buy or start business
• Profits are used as agreed upon by partners
• Business built by owners capital
Partnership Advantages
• Partnerships are easily formed
• Start up costs are low
• Limited government regulation
• More management = better decisions
• Some tax advantages
• More than one source of capital
Partnership Disadvantages
• Partners are 100% financially liable
• Difficult to find partners that easily cooperate
• Limited ability to raise capital
• Disagreements between partners may cause
confusion with management decisions,
employees, etc.
Corporations
• Owned by the Stockholders
• Operated by the board of Directors
• Profits are used as dividends to stockholders
or as reserves for operations
• Business built by stockholder investment
Corporation Advantages
• Specialized management =Greater efficiency
• Easy to raise capital
• Specific privileges, rights and regulations
• Ownership can be transferred
• Tax advantages
• Limited financial liability
Corporation Disadvantages
• Very expensive to organize
• Closely regulated by government
• Less personal management = lower employee
loyalty & output
• Can be Double Taxed
Cooperative
• Organized by associates who become
owner/members
• State Charter required to start cooperative
• Profits are limited by state law (around 8%)
• Members do business through cooperative
(group advantage)
Cooperative Differences
• Buys and sells primarily to it’s own members
• Co-ops sometimes exempt from antitrust
regulations
• Highly regulated buy government
• Often resented buy other members of the
business community
Recap
• 4 Business types- Cooperative
Corporations Partnership Sole
Proprietorship
• Each serves specific purpose and has
advantages and disadvantages
• All are used for specific purpose, all work
well for different types of enterprises
Resources
• MSU Agriscience Website
www.agriscience.msu.edu
• Calpoly Agriscience Website
www.calpoly.edu/~aged/