Chapter 3Chapter 3Business OrganizationsBusiness Organizations

Sole ProprietorshipsSole Proprietorships• Owned and run by one personOwned and run by one person• The most common type of business The most common type of business

organizationorganization Advantages:Advantages:

• Simple to start and endSimple to start and end• Simple management structureSimple management structure• Owner retains all profitsOwner retains all profits• Simple tax structureSimple tax structure

Sole ProprietorshipSole Proprietorship(Cont.)(Cont.)

Disadvantages:Disadvantages:• Unlimited LiabilityUnlimited Liability• Start-up money or financial capitalStart-up money or financial capital• Lack of skilled/experienced employeesLack of skilled/experienced employees

PartnershipsPartnerships

Joint ownership of the companyJoint ownership of the company The least common form of business The least common form of business

structurestructure Two types:Two types:

• General and LimitedGeneral and Limited Advantages:Advantages:

• Similar to proprietorshipsSimilar to proprietorships• Easier to attract investors and skilled Easier to attract investors and skilled

labor labor

PartnershipsPartnerships(Cont.)(Cont.)

Disadvantages:Disadvantages:• Partners are fully responsible for the Partners are fully responsible for the

actions of the other partners (exceptionactions of the other partners (exception—for limited partnerships)—for limited partnerships)

• Disagreements between partnersDisagreements between partners

CorporationsCorporations

Separate legal entity, almost like an Separate legal entity, almost like an individualindividual

A corporation insulates the activities A corporation insulates the activities of the business from the individuals of the business from the individuals running itrunning it

Corporations can offer stock:Corporations can offer stock:• Common stock—stockholder has a voteCommon stock—stockholder has a vote• Preferred stock—no vote, but receive Preferred stock—no vote, but receive

dividends before common stock holdersdividends before common stock holders

CorporationsCorporations(Cont.)(Cont.)

Advantages:Advantages:• It can acquire financial capital easily It can acquire financial capital easily

through the selling of stock or bondsthrough the selling of stock or bonds• Limited liabilityLimited liability• Owners can easily enter or leave the Owners can easily enter or leave the

companycompany

CorporationsCorporations(Cont.)(Cont.)

Disadvantages:Disadvantages:• Difficult to startDifficult to start• Owners have little say in the day-to-day Owners have little say in the day-to-day

operationsoperations• Double taxation—corporate profits are Double taxation—corporate profits are

taxed and when those profits are taxed and when those profits are distributed to shareholdersdistributed to shareholders

• More government regulation—mergers More government regulation—mergers may need to be approved and internal may need to be approved and internal records must be sharedrecords must be shared

The Role of the GovernmentThe Role of the Government

Regulation to protect consumers:Regulation to protect consumers:• Most common in key industries like Most common in key industries like

banking, insurance, transportation, and banking, insurance, transportation, and utilitiesutilities

Business Development:Business Development:• Governors and mayors act as salesmen Governors and mayors act as salesmen

for their state or cityfor their state or city• Arnold SchwarzeneggerArnold Schwarzenegger