Types of Business Organizations

Types of Business Organizations

1) Sole Proprietorships

2) Partnerships

3) Corporations

4) Cooperatives/Nonprofit Organizations

1)Sole Proprietorships

Business owned and operated by one person or married couple

*Most common form in U.S. usually smaller businesses easiest type to create

Advantages A) All profits kept (except taxes)

B) Full pride of ownership

C) “own boss”, no partners or shareholders

Disadvantages (Sole Proprietorship)

A) Unlimited Liability for debts/malpractice

B) Total responsibility for business (No others to share burden or add expertise)

C) Must bear all costs of start-up, maintenance, and expansion

D) Difficulty attracting quality employees (limited benefits)

2) Partnership

Business owned by two or more people Each partner contributes: Money

Property Labor Skill

Each expects to share in the profits/losses of the business

Advantages

A) More $ available for start-up, expansion

B) Share workload, duties, decision making

C) Can combine different skills

Disadvantages (Partnership)

A) Legal structure is complex (new partner = new agreement)

B) Unlimited Liability (Each partner responsible for all debts)

C) Stress on partners’ relationship

3) Corporation A business recognized by law Business becomes a legal entity (same rights as a person) *buy/sell/own property, sue/be sued, pay taxes, contracts

How to start Fill out proper forms to become incorporated Receive charter from the government Sell shares of stock to raise money (Owners of shares are shareholders/stockholders) Owners elect a Board of Directors Board of Directors hires the CEO/Managers

Advantages (Corporation)

A)Ease of raising financial capital (sell stock/bonds)B) Corporations can grow to be huge

FORTUNE Global 500 2007: Full list 1-100

C) Board of Directors hires professional managers to run business (if unsuccessful they will replace them)

D) Ownership can be easily transferred

E) Limited Liability- Only the corp. is responsible for debts. Shareholders personal assets are protected from creditors Potentially lose just your investment in the corp.

Disadvantages (Corporation)

A)Expensive and complex to set up

B) Owners have little say in day-to-day operation of business

C) More regulations than other forms (Detailed reports, etc. to keep potential & current investors

informed)D) Must pay regular dividends (Owners share of corp. profit)

E) Double Taxation Corporations profits are taxed twice (Corporate and personal)

Other Types (Nonprofit)

Operates in a businesslike way to promote the interest of its members but in a “not-for-profit” way

Many examples include churches, hospitals, charities, etc

• Cooperatives

A voluntary association of people formed to carry on some kind of economic activity that benefits the members

Consumer Co-ops: Buy bulk amounts of goods to help save $Service Co-ops: Provides a service to its members

(Ex.- insurance and credit)Producer Co-ops: Helps members promote or sell products

Farmers can share costs of storing/shipping