This document discusses different types of business organizations including sole proprietorships, partnerships, limited liability companies, cooperative societies, and public corporations. It provides details on forming and operating each type of business structure, highlighting their key advantages and disadvantages. Specifically, it notes that sole proprietorships are easy to start but owners have unlimited liability, while partnerships allow for ease of management but partners also have unlimited liability. Public corporations make it easy to raise capital through stock sales but involve more regulatory requirements and costs.
2. TYPES
Private enterprises
Sole proprietorship
Partnerships
Limited liability Companies
Cooperative societies
Public enterprises
3. I. Forming a Proprietorship
Easiest form of business to start-needs only the
occasional licenses and fees
Ease of start up
Relative ease of management
Decisions can be made quickly
4. Proprietorship Advantages
Owner enjoys the PROFITS of successful
management without having to share
No separate business income taxes
Not recognized as a separate legal entity
Owner must pay individual income taxes on
profits
Business is exempt from any tax on the
income
Psychological satisfaction
Easy to get out of business
5. Proprietary Disadvantages
Unlimited liability
Owner is personally and fully responsible for all loses
and debts of the business
If business fails, the owner’s personal possessions
may be taken away to satisfy business debts
Difficult to raise capital
Personal financial resources are limited
Size and efficiency: Inventory is any unused stock
of finished goods/parts in reserve
6. Proprietary Disadvantages
Limited Managerial Skills
Difficulty of attracting qualified employees
Fringe benefits- Employee benefits such as vacation,
sick leave, retirement, medical, and health insurance
may not be available
Limited lifespan: The firm legally ceases to exist
when the owner dies, quits, or sells the business
7. II. Partnerships
Owned by 2 or more persons
Least numerous business organization
Smallest proportion of sales and net income
8. Types of Partnerships
General Partnership: All partners are responsible
for the management and financial obligations of the
business.
Limited Partnership: At least one partner is not
active in the daily running of the business, although
he or she may have contributed funds to finance the
operation
9. Forming a Partnership
Relatively easy to start
Articles of Partnership: Formal legal papers which
specify arrangements between partners
10. Advantages of Partnerships
Ease of start up.
Articles of Partnership involves attorney fees and
filing fee for the state.
Ease of management: Each partner usually brings
different areas of expertise to the business.
Lack of special taxes: Partners draw profits from
the firm and then pay individual income taxes at the
end of the year
11. Advantages of Partnerships
Usually attract financial capital more easily than
a sole proprietorship
Slightly larger size = greater efficiency
Lawyers, doctors, accountants
Usually attract top talent to their organizations
12. Disadvantages of Partnerships
Unlimited Liability: Each partner is fully
responsible for the acts of all partners
Limited Partnership: The limited partner has
limited liability
Investor’s responsibility for the debts of the business is
limited by the size of their investment in the firm
If business fails with a large debt, the limited partner
(investor) only loses their original investment, leaving
the general partners to make up the rest
13. Disadvantages of Partnerships
Limited Life: When a partner leaves or dies, the
partnership must be dissolved and reorganized.
The new partner may try to keep an
agreement to keep its name
Potential for Conflict: “Why can’t we all just get
along?”
14. Forming a Public Corporation
Very formal and legal arrangement
Incorporation (or forming a corporation) must file
for permission from the state where business will
have be headquartered
Charter: A government document that gives
permission to create a corporation if approved
States the company name, address, purpose of
business, and the number of shares of stock, or
ownership certificates, within the firm
15. Forming a Public Corporation,
continued
Shares of stock are sold to
investors called…
stockholders, or
shareholders.
money is then used to set-up
corporation
A check, or dividend, is paid
to shareholders if the
corporation is profitable
16. Corporate Structure: Common Stock
Investors become owners with certain ownership rights,
depending on type of stock purchased:
Common Stock: Basic ownership of corporation
Owner usually receives 1 vote for each share of stock
Used to elect board of directors who direct the corporation’s
business by setting policies/goals
The Board hires a professional management team to run
the business on a daily basis
17. Common Stock
The dividend is variable
and common stock
shareholders are the last
to receive a dividend or
get their money back if
corporation fails.
18. Preferred Stock
Nonvoting ownership shares of a corporation
These shareholders receive dividends first and they
are fixed
If there are funds or property left after a business fails,
preferred stockholders get their investment back
first!
Preferred stockholders cannot elect the board of
directors-THEY CANNOT VOTE!!
19. Advantages of the Public Corporation
Ease of raising financial capital
Need more capital?
Sell additional stock
Borrow money by issuing bonds: Written promise to
repay the amount borrowed at a later date
Principal: Amount borrowed to be repaid later
Interest: The price paid by the corporation for the
use of another’s money
20. Advantages of the Corporation
Ease of finding
professional
managers
Limited liability for
its owners
Corporation is fully
responsible for its
debts and obligations
**Because limited
liability is so attractive,
many firms
incorporate just to
take advantage of it
21. Advantages of the Corporation
Unlimited life: Corporation continues to exist even
when ownership changes
Because the corporation is a legal entity, the name of
the company remains the same, and the corporation
continues to do business
Ease of transferring ownership: If a shareholder
no longer wants to be an owner, they can sell the
stock
22. Disadvantages of the Corporation
Difficult to get a charter
Depending on the state, attorneys’ fees and filing
expense can cost several thousand $$
Owners/shareholders have little say in
business affairs after voting for board of
directors
Double Taxation: Corporate profits
Stockholders’ dividends are taxed twice: once as
corporate profit and again as personal income
23. Disadvantages of the Corporation
Lots of Government regulation:
Register with state where the Corp. is chartered
To sell stock to the public, the Corp. must register
with the Securities and Exchange Commission
Provide detailed financial statements on regular
basis to the general public
When taking over another business, the Corp may
require federal approval