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TYPES OF BUSINESS ORGANIZATIONS

The three main types of for-profit business organizations are:

1. Sole proprietorship (sole trader)

2. Partnership

3. Corporation

1. SOLE PROPRIETORSHIP (SOLE TRADER)

• A business that is owned by one individual who is in charge of all aspects of the business.

2. PARTNERSHIP

• A business that is owned by two or more owners who pool their financial and human resources and operate the business as co-owners under a voluntary legal agreement (Partnership Agreement) that they have entered into on a voluntary basis.

3. CORPORATION

• A business that is a separate legal entity created under state law. Ownership is obtained through the purchase of shares of stock in the corporation.

ADVANTAGES AND DISADVANTAGES OF THE DIFFERENT FORMS OF BUSINESS ORGANIZATION

|BUSINESS ORGANIZATION | | |

| |ADVANTAGES |DISADVANTAGES |

| | | |

|Sole |Easy to startup |Owner has unlimited liability |

|Proprietorship |Owner makes all decisions |Owner may need to hire outside experts |

| |Owner keeps all profits |Limited access to capital |

| |Owner can decide own hours |Business dies when the owner dies |

| | | |

|Partnership |Owners share workload |Owners may not get along with each other |

| |Owners share financial burden |Mutual agency – owners responsible for partner’s |

| |Easier access to capital |actions. |

| |Each owner may have different strengths |Partners have unlimited liability |

| | |Owners share the profits |

| | | |

|Corporation |The corporation has easy access to capital |Startup is expensive |

| |Unlimited life |Double taxation – corporation pays tax on profit and |

| |Owner’s liability limited to the amount |shareholders pay taxes on dividends |

| |invested in the company |Heavily regulated by the government |

| |Specialized management skills |Limited role in decision making |

ADVANTAGES AND DISADVANTAGES OF THE DIFFERENT FORMS OF BUSINESS ORGANIZATION

|BUSINESS ORGANIZATION | | |

| |ADVANTAGES |DISADVANTAGES |

| | | |

|Sole Proprietorship |1. |1. |

|Definition: | | |

| | | |

| | | |

| |2. |2. |

| | | |

| | | |

|Example: | | |

| |3. |3. |

| | | |

|Partnership |1. |1. |

|Definition: | | |

| | | |

| | | |

| |2. |2. |

| | | |

| | | |

|Example: | | |

| |3. |3. |

| | | |

|Corporation |1. |1. |

|Definition: | | |

| | | |

| | | |

| |2. |2. |

| | | |

| | | |

|Example: | | |

| |3. |3. |

TYPES OF BUSINESS ORGANIZATIONS

DISCUSSION QUESTIONS

1. Why is the sole proprietorship the most common form of business organization?

2. Why does a corporation have easy access to capital?

3. What factors should be considered before choosing a form of business ownership?

4. What precautions can a corporation take to protect itself when conducting business overseas?

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