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.

1. ECONOMICS
BUSINESS ORGANIZATIONS
Short revison series

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

24. END