1. 1.02—Types of Business
Organization
Objective 1.02 Compare the main types of business organization:
Sole proprietorship, partnership, corporation, and franchise

2. Sole Proprietorship
 Owned by one person  Disadvantages
 Owner must pay for
 Examples everything needed for the
business
 Floral shops
 Difficult to obtain capital
 Bookstores
needed to start
 Farms  Owner might lack
business skills
 Advantages  Unlimited liability—owner
 Easy to start has full responsibility for
 Owner is his/her own company’s debts and can
boss lose entire investment as
 Owner keeps all profits well as personal assets

3. Partnership
 Owned by two or more  Disadvantages
people  Partnership agreement is
 Typical Examples needed to start
 Law firms  Partners might not get
 Medical practices along well
 Partners must share
 Advantages profits
 Relatively easy to start  Partnership must be
 Easier to obtain capital reorganized if one partner
than in a sole quits
proprietorship  Partners share unlimited
 Partners share skills and liability—all partners share
talents the responsibility of a bad
 Partners share risks decision made by one
partner (including debts)

4. Corporation
 Owned by many people—  Examples
stockholders, but treated by  Nike
law as one person (can own  IBM
property, pay taxes, make  Google
contracts)  Disadvantages
 Advantages  Tax filing by corporation,
 Corporations can raise as well as owners &
money by selling stock workers
 Limited liability—  Government closely
stockholders can only lose
what they have invested regulates corporation
 More difficult to start a
 Corporation continues when
stockholders sell stock corporation
 Corporation can always  Must obtain a corporate
make money by selling more charter from the state in
stock which headquarters is
located

5. Franchise
 A business where there is a  Disadvantages
contractual agreement to  Some franchisors are strict
sell another company’s about how the business is
products or services in a run
specific geographic area  Franchise is limited in what
 Advantages products or services can be
sold
 Easy to start
 Franchise must operate like
 Franchisee can rely on
every other franchise
good name and expertise
of the parent company  Examples
 Franchisee can get needed  Taco Bell
guidance in operating the  Blockbuster
business from franchisor  McDonald’s