Types of Businesses
Good vs. Service
• What is the difference between a good and a
service?
Types of Business Ownership
• There are three main types of businesses:
– Sole proprietorships
– Partnerships
– Corporations
*entrepreneurs must decide which type best fits
their situation*
*during the life of a business, its form can change*
• These changes often occur when a business is growing
– Sole proprietorships
– Partnerships
– Corporations
– Franchise
– Non-Profit
Sole Proprietorships
• A Sole Proprietorship is a business owned by
one person
• About 75% of all businesses in the U.S. are
sole proprietorships
Sole Proprietorships
• Advantages
– It is easy to do
• Might need only a license or a permit to start
– They are in charge of their own business
• They can make all the decisions and run the companies as
they see fit
– They can keep all of the profits
– Their income taxes are lower than a corporation’s
• Corporations pay taxes on the income they receive
• Then a corporation’s stockholders pay taxes on the income
they receive as dividends on stocks
• A sole proprietor is only taxed on their personal tax rate,
which is often lower than the corporate tax rate
Sole Proprietorships –
Unlimited Liability
• Disadvantages
– Unlimited Liability, which means the owner is responsible
for the company’s debts
• If the owner has more debt than income received, the owner has
to make up the difference
– Limited access to credit
• If the owner doesn’t have much experience or money saved,
lenders will be reluctant to offer credit
• Many sole proprietorships fail because they run out of money
– The person in charge may not have all of the skills needed
to run the business
• The owner may know everything about the skills needed for the
service, but nothing about record keeping
– The company ends when the owner dies
Partnerships
• A Partnership is a business owned by two or
more people who share its risks and rewards
• To start a partnership, you need a Partnership
Agreement, which is a contract that outlines
the rights and responsibilities of each partner
Partnerships
• Advantages
– It is easy to do
• Might need only a license or a permit to start
– It is easier for partnerships to obtain capital
– Each partner usually contributes money to start the
business
– Banks are often more willing to lend money to
partnerships than to sole proprietorships
– Not dependent on a sole person
– The income of a partnership is taxed only once
– Each partner brings difference skills and talents to the
business
Partnerships
• Disadvantages
– All of the partners share the business risks
– Problems occur when partners do not get along or
one of them decides to leave
• The other owners must end the partnership and
reorganize the business since the original partnership
no longer exists
– Partners share unlimited legal and financial
liability
• If one partner makes a bad decision, all partners are
responsible
Corporations
• A Corporation is a company that is registered by a
state and operates apart from its owners
• To form a corporation, the owners must get a
corporate charter from the state where their
main office will be located
– A corporate charter is a license to run a corporation
• To raise money, the owners can sell stock, or
shares in the company
• The company must have a boards of directors,
who will govern the corporation
Corporations
• Advantages
– Limited Liability, which holds a firm’s owners
responsible for no more than the capital that they
have invested in it
– The ability to raise money when people buy stock
– The corporation does not end if an owner dies
• The deceased owner’s shares are sold, and the business
continues
Corporations
• Disadvantages
– Corporations pay taxes on their income, and
stockholders pay taxes on profits issued to them,
which is called Double Taxation
– The government regulates corporations more than
other types of businesses
– Corporations are difficult and costly to start
NIKE?
S Corporations
• S Corporations are special corporations that
do not have double taxation
– They do have other restrictions
Other Ways to Organize a Business
• Cooperative
• Nonprofit Organization
• Franchise
Cooperative
• A Cooperative is an organization owned and
operated by its members
– Groups of businesses, such as small farms, pool
their resources and form a cooperative
– The purpose is to save money on the purchase of
certain goods and services
– A cooperative can make marketing of goods and
services more efficient and profitable
• Juice maker Ocean Spray is a cooperative of cranberry
growers
Nonprofit Organization
• A Nonprofit Organization, or nonprofit, is a
type of organization that focuses on providing
a service, but not to make a “profit”
• Nonprofits must also register with the
government
• Because they do not make a “profit”, they do
not pay taxes
Franchise
• A Franchise is a contractual agreement to use
the name and sell the products or services of
a company in a designated geographic area
– Two common franchises are Taco Bell and Merry
Maids
– To run a franchise, you have to invest money and
pay franchise fees or a share of the profits
– In return, the franchiser offers a well-known name
and business plan
Churches?
Review
With a partner:
• Identify TEN businesses and determine which
type of business structure they fall into.
• Create a PowerPoint Presentation showing the
ten businesses your chose and the type of
business they are.