Forms of Business Organizations. Essential Question Why do American’s start their own businesses?...
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Transcript of Forms of Business Organizations. Essential Question Why do American’s start their own businesses?...
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American CapitalismForms of Business Organizations
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Essential Question
Why do American’s start their own businesses?
Desire for Independence Desire for Money
Desire for Prestige General Interest in Product
Desire to satisfy a consumer need ???
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CapitalismWhat “elements” of American Capitalism
allow for people to start their own businesses?
Freedom of EnterprisePrivate Property
Weak Barriers of Entry into the MarketProfit Incentives
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Types of American Businesses Sole Proprietorships
Partnerships
Corporations
Num
ber o
f Org
anizat
ions
Sale
s
Net
Inco
me
0.00%20.00%40.00%60.00%80.00%
Sole Pro-prietor-shipsPartnershipsCorporations
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Sole ProprietorshipsMaximum Gain v. Maximum Loss
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Sole ProprietorshipRun by one person who benefits from all the
profits but also has unlimited liability should the business fail.
Easiest type of business to beginRequires few licenses and feesEasiest type to locate (internet, warehouse,
home, etc.)
Sole Proprietorships
Number of Organiza-tionsSalesNet Income (Profit)
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SP: Advantages & DisadvantagesAdvantages1. Easiest to start up2. Simple Management-
immediate decision making
3. No sharing of profits4. Owner does not pay
separate business taxes5. You are your “Own
Boss”6. Easy exit of market- pay
bills and your FREE!
Disadvantages1. Unlimited Liability-
personal possessions at risk2. Difficult to raise financial
capital- banks hesitant…individual must use savings, credit, etc.
3. Limited on size and efficiency
4. Limited management experience
5. Difficulty in attracting qualified personnel.
6. Limited Life
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PartnershipsLimited Gain v. Limited Loss
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PartnershipsUnincorporated business owned and
operated by two or more people who share the profits and the responsibility for debt.
General Partnership: All partners are equally responsible for management and debts
Limited Partnership: One or more partners are not active in the daily running of the business and have limited responsibility for debts
Partnerships
Number of Organiza-tionsSalesNet Income (Profit)
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P: Advantages & DisadvantagesAdvantages:1. Easy start-up2. Ease of Management-
partners specialize3. Lack of special taxes4. Better at attracting
financial capital5. Larger size = better
efficiency 6. Easier to attract top
talent
Disadvantages:1. GP- partners
responsible for acts of others
LP- LP only loses
investment1. Limited Life2. Divided Profits3. Conflict between
partners?
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CorporationPossible Max/Min Profits v. No Liability
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CorporationsBusiness organization recognized by law as a
separate legal entity
They can buy and sell property, enter into legal contracts, and sue and be sued (rights of individuals but separate from owners)
Corporation
Number of OrganizationsSalesNet Income (Profit)
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Corporate FormationFormal and legal arrangement
1. File for permission w/ national government2. Upon approval a charter is granted3. Specified amount of stock granted4. Stocks sold to investors/shareholders5. $ from stock sales go towards “set up” of
corporation6. Once business profits, dividends are issued
to stockholders
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Corporate StructureStockholders = Owners
Common Stock: basic ownership of corporation (1 stock = 1 vote)
Preferred Stock: nonvoting membership…can’t elect board members, but receive dividends BEFORE common stock holders.
**Should corporation go out of business…PS holders receive return of investment before CS holders**
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C: Advantages & DisadvantagesAdvantages1. Easy to raise
financial capital (issuing of bonds)
2. Limited Liability3. Owners can hire
managers to run firm
4. Unlimited Life5. Ease of ownership
transfer (sell stock)
Disadvantages1. Double taxation =
detailed sales & expense records
2. Expense of getting a charter
3. Shareholders do not dictate how business is run
4. Federal Government Regulation
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Why do many business owners prefer corporations over other forms
of business organizations?