This document outlines four main types of business organizations: sole proprietorships, partnerships, corporations, and franchises. It provides details on the ownership structure, advantages, disadvantages, and examples of each type. Sole proprietorships are owned by one individual, partnerships by two or more people, corporations are owned by stockholders but treated as a single legal entity, and franchises operate under a contractual agreement with a parent company to sell its products in a specific area.

1. Sole proprietorship, partnership,
corporation, and franchise
1.02—Types of
Business Organization
Sole Proprietorship
• Owned by 1
• Examples
o Floral shops
o Bookstores
o Farms
• Advantages
o Easy to start
o Owner is his/her own boss
• Owner keeps all profits
• Disadvantages
o Owner must pay for everything needed for the business
o Difficult to obtain capital needed to start
o Owner might lack business skills
o Unlimited liability—owner has full responsibility for company’s debts and can lose
entire investment as well as personal assets

2. Partnership
• Owned by 2 or more people
• Examples
o Law firms
o Medical practices
o Auto Body Repair
• Advantages
o easy to start
o Easier to obtain capital than in a sole proprietorship
o Partners share skills and talents
o Partners share risks
Disadvantages
• Partnership agreement is needed to start
• Partners might not get along well
• Partners must share profits
• Partnership must be reorganized if one partner quits
• Partners share unlimited liability—all partners share the responsibility of a bad
decision made by one partner (including debts
Corporation
• Owned by many people—stockholders, but treated by law as one person (can own
property, pay taxes, make contracts)
• Advantages
• Corporations can raise money by selling stock
• Limited liability—stockholders can only lose what they have invested
• Corporation continues when stockholders sell stock
• Corporation can always make money by selling more stock
o
• Examples
o Nike, IBM, Google
• Disadvantages
o Corporations are taxed on their profits
o Government closely regulates corporation

3. o More difficult to start a corporation
o Must obtain a corporate charter from the state in which headquarters is located
Franchise
Franchise is a contractual agreement to sell a company’s products or services in a
specific geographic area
Advantages
Easy to start
Franchisee can rely on good name and expertise of the parent company
Franchisee can get needed guidance in operating the business from franchisor
Disadvantages
Some franchisors are strict about how the business is run
Franchise is limited in what products or services can be sold
Franchise must operate like every other franchise
Examples
Taco Bell
Blockbuster
McDonald’s