Ch. 22
Section 1
Types of Businesses
Proprietorships
# of businesses in America
73% -- sole proprietorships (single owned)
20% -- corporations
7% -- partnerships
Proprietorships (cont.)
Sales
89% -- corporations
6% -- sole proprietorships
5% -- partnerships
Sole Proprietorship
most common form of business organization in
U.S.
Owned and operated by one person
Advantages
Easiest form of business to set up; anyone can
start a proprietorship up whenever they want to
as long as you have the money.
Sole Proprietorship (cont.)
Single owner fully owns the business and receive all the
profits
Owners can make decisions quickly
Do not have to consult others
Are not subject to any corporate income tax
However…
Sole Proprietorship (cont.)
Disadvantages:
Financial responsibility lies on one person
(unlimited liability)
Difficult to raise financial capital (money)
Hard to attract qualified employees vs. large
corporations (ex. benefits, wages)
Partnerships
Partnerships – businesses owned by two or
more people.
Advantages:
Can raise money more easily
Can always take on new partners
Each partner brings specific talents to the
business
No corporate income tax
Partnerships (cont.)
Disadvantages:
Legal structure is complex; added or removed members
means a new agreement has to be made.
Articles of partnership – legal agreement which identifies
how much each partner will contribute, how profits will be
shared, how to break up the business if it is closed, what
role each will play, etc.
Unlimited liability (each person is responsible for all
business debt)
Corporations
Corporation – business that has many of the rights and
responsibilities of individuals
- can own property
- can sue or be sued
- must pay taxes
Corporations start with a charter – government
document granting permission to organize.
Describes the business and specifies the amount of
stock that will be issued (ownership shares)
Corporations (cont.)
Corporations are unique in that stockholders
own the company, but elect a board of
directors who will decisions on their behalf.
Board of Directors do not handle the day-to-day
running of the business (CEOs/COOs)
Corporation owners and managers are two
different groups of people
Corporations (cont.)
Advantages:
Easier to raise financial capital by selling new shares of
stock which allows expansion
Easier to borrow from banks
Professional managers (CEO) are hired to run the
business. If they fail, they are replaced with someone
who will get the job done for the shareholders.
Corporations (cont.)
Ownership can be easily transferred by buying
or selling stock.
Limited liability for stockholders
Corporations (cont.)
Disadvantages:
Expensive and complex to set up
Shareholders have little say in the running of the
business
Corporations are more subject to more government
regulations. Must report detailed information of company
finances to keep stockholders informed.
Corporations (cont.)
Double taxation
- first corporation pays a corporate income tax
on its yearly profits
- stockholders then must pay income tax on the
dividends distributed to them.