Chapter 8

BUSINESS ORGANIZATIONS

SOLE PROPRIETORSHIPS

A business organization is an establishment formed to carry on commercial enterprise.

A sole proprietorship is a business owned and managed by a single individual.

SOLE PROPRIETORSHIP

70% of all businesses in the U.S. are sole proprietorships, but they account for only 4% of all U.S. sales.

ADVANTAGES OF SOLE PROPRIETORSHIP

Easy to start up

Must meet some minimum requirements;

1. Authorization: a business license which is an authorization to start a business issued by the local government.

2. Site permit: a certificate of occupancy if not working out of home.

3. Name: must register a business name.

ADVANTAGES OF SOLE PROPRIETORSHIP

Relatively few regulations, it is the least regulated form of business organization.

Zoning laws are laws in a city or town that designates separate areas for residency and for business.

ADVANTAGES OF SOLE PROPRIETORSHIP

Sole Receiver of Profit

ADVANTAGES OF SOLE PROPRIETORSHIP

Full control

Easy to Discontinue

DISADVANTAGES OF SOLE PROPRIETORSHIP

Unlimited personal liability

Liability is the legally bound obligation to pay debts.

May even lose personal property to

make up debts.

DISADVANTAGES OF SOLE PROPRIETORSHIP

Limited access to resources

Having to pay for everything out of your pocket limits you.

Hard to expand quickly.

Individual strengths and weaknesses.

DISADVANTAGES OF SOLE PROPRIETORSHIP

Lack of Permanence

Limited life to due the ownership by one person.

Hard to keep employees, no fringe benefits, which are payments other than wages or salaries. Health care, paid vacation, retirement.

PARTNERSHIPSSECTION 2

PARTNERSHIPS

A partnership is a business organization owned by two or more persons who agree on a specific division of responsibilities and profits.

TYPES OF PARTNERSHIP

General Partnership: partnership in which partners share equally in both responsibility and liability.

TYPES OF PARTNERSHIP

Limited Partnership: partnership in which only one partner is required to be a general partner, or the one who is liable for the company. The other partners only contribute money.

TYPES OF PARTNERSHIP

Limited liability partnerships (LLP): partnership in which all partners are limited partners.

Partners are limited from personal liability in certain situations, such as another partner’s mistakes. Attorneys, doctors, dentist, and accountants.

ADVANTAGES OF PARTNERSHIPS

Easy to start-up.

Law does not require written agreement, but most develop articles of partnership, which is simply a partnership agreement outlining how the business will run.

ADVANTAGES OF PARTNERSHIPS

If no articles of partnership they use the Uniform Partnership Act (UPA), an act adopted by most states that gives common ownership interests, profit and loss sharing, and shared management responsibilities in a partnership.

ADVANTAGES OF PARTNERSHIPS

Shared decision making and Specialization.

ADVANTAGES OF PARTNERSHIPS

Larger pool of capital.

ADVANTAGES OF PARTNERSHIPS

Taxes

Like sole proprietorships, partnerships are not subject to special taxes.

DISADVANTAGES OF PARTNERSHIPS

Many of the disadvantages of sole proprietorship also apply to partnerships.

Unlimited liability, unless it is LLP.

General partner can lose everything.

DISADVANTAGES OF PARTNERSHIPS

Not complete control, must choose partners carefully.

DISADVANTAGES OF PARTNERSHIPS

Potential for conflict