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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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