Business Organizations
©2012, TESCCC
Objectives
1. Be able to list and describe the
three types of business
organizations.
2. Be able to explain the advantages
and disadvantages of the three
types of businesses.
©2012, TESCCC
Business Organization
• Profit-seeking enterprise that produces
goods or services or carries on
commercial enterprise.
©2012, TESCCC
Sole Proprietorship
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•
•
•
Most common form - most numerous
A single owner-controlled business
Easy to form; easy to end business
Doesn’t share profit, doesn’t pay special
tax
• Sense of personal freedom
• 75% of all businesses
©2012, TESCCC
Disadvantages
of Sole Proprietorship
•
•
•
•
•
Has unlimited liability
Difficulty raising capital
Limited life
Inefficiency
Limited managerial experience
©2012, TESCCC
Partnership- jointly owned by
two or more persons
• Limited Partnership: no active role in
running business – limits liability
• General Partnership: all partners
responsible for management and
financial obligations
• Limited Liability Partnership:
all partners are limited partners
©2012, TESCCC
Partnerships
Strengths
• Easy to start
• Lack of special taxes
• Easier to attract financial capital than a
sole proprietorship
• Shared decision making
©2012, TESCCC
Partnerships
Weaknesses
• Liability for other partner as well as
personal liability
• Limited life
• Potential for conflict
©2012, TESCCC
Corporation – separate legal
entity
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•
•
•
Artificial person
Files charter to form
Sells stock
Ownership divided to shareholders or
stockholders
• Pays dividend
• Two types of stock
• common stock
• preferred stock
©2012, TESCCC
Types of Corporations
• Closely Held Corporations: also known
as privately held corporations. Stock is
issued to only a few people, often family
members
• Publicly Held Corporations: Many
shareholders who can buy and sell
stock on the open market
©2012, TESCCC
Corporation
Strengths
•
•
•
•
•
•
Ease of raising financial capital
Hire professional to run corporation
Limited liability
Unlimited life
Ease of transferring ownership
90% of sales
©2012, TESCCC
Corporation
Weaknesses
• Difficult to start
• Shareholders have little say in how
business is run
• Must pay special tax (taxed twice)
• More government regulation
©2012, TESCCC
Franchise
• Contract between a franchiser (corporation)
and a franchisee (sole proprietor)
• Very popular among restaurants and fast
food places; many chain stores use this
method to expand a proven idea
Franchise
Franchisee Provides
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•
•
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Building/Facilities
Employees
Fee or % of profits
Management
Franchiser Provides
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•
•
•
Supplies
Legal Help
Training
Advertising
Franchise
Advantages
• Know idea works
• Easier start up legally
• Receive business
training
• Allows corporation to
expand at lower cost
• Legal protection
Disadvantages
• Cannot use your own
ideas
• Must follow the contract
• Could be closed if low
performing
• Franchisee may be poor
manager