Types of Business organizations

TYPES OF BUSINESS

ORGANIZATIONS

Mr. Wyatt

Sole ProprietorshipsIt means only one entrepreneur Earns all profits and debts 70% of businesses in the U.S.

What does it take to be an entrepreneurial? Ambition Risk taker You should answer YES to all of these

questions1. Are you responsible?2. Are you energetic?3. Are you organized?4. Are you goal – oriented?5. Do you know how to run a business?

Advantages of going soloA. Ease of startup and end

1. You have to have a Authorization from the STATE (business license)

2. You must obtain a Site Permit if operating out of a different location

3. Must register a business nameB. Few regulations

1. Beware of zoning lawsC. Owner gets full profits…if any.D. Full control

Disadvantages of going soloA. Unlimited Personal Liability

1. You are LEGALLY OBLIGATED to pay ALL DEBTS that your business makes.

a. This means that if your business fails (and most do the first time) you may have to sell personal assets to cover the debts.

B. Limited access to resourcesC. Lack of permanence

1. Usually can’t offer Fringe Benefits

PartnershipsTwo or more people own the business

9 % of the businesses in the U.S.

Excellent if the owner is willing to share

Types of Partnerships1. General Partnership2. Limited Partnership3. Limited liability Partnership

General PartnershipIt’s the most common type

All partners share in the responsibilities and profits of the business

Limited PartnershipOnly one partner is a full partner – the rest

only invest money The good side of this is that if the

business fails, the limited partners only lose the investment money they put in.

Also called silent partners

Limited Liability PartnershipsJust like general partnerships except in

certain situations the partners have only a limited personal liability.

Ex. If a partner loses business money investing, the other partners are not fully responsible for the one partner’s mistake.

Advantages to PartnershipsEasy to start Its smart to have an Article of Partnership Few regulations

Financial Impact – more than one person contributes assets to the business

Able to offer better fringe benefits to keep employees

Shared Decision Making

Disadvantages to Partnerships

Partners in some form still have unlimited liability

There is more potential for conflict between partners

Lack of Permanence

What is a Franchise It’s a partially independent business that

pays fees to it’s parent company.

The owner(s) of the franchise owner gains exclusive rights to sell a good or service in a certain area.

The parent company is called the franchiser

It develops their goods or services to be reliable

The local owner is called a franchisee they produce and sell the franchiser’s

product with the aid of the franchiser

Advantages to a Franchise1. The franchiser offers management training

and support2. Each franchisee is required to follow certain

standardized rules to ensure quality3. The parent company can afford to advertise

nationally4. Franchisers sometimes offer assistance in

startup costs5. Capital goods necessary for the business

are purchased in bulk by the franchiser

Disadvantages of a Franchise1. High franchising fees and royalties

meaning to get into the business is very expensive

2. Very strict operating standards or face loss of the franchise

3. Limited purchasing ability4. Limited product line availability

Enter the CorporationIt’s a legal entity owned by individual stockholders

each of whom has limited liability for the firms debts. Stocks are certificates of ownership in a corporation

The most complex of all businesses

The corporation has a separate legal identity from the owners. For legal purposes it is a person.

20% of all businesses in the U.S. but generate nearly 60% of all income

Types of CorporationsClosely Held Corporations

Publicly Held Corporations

Advantages to Corporations1. Limited Liability 2. Other types of ownership compared to

the previous models3. It has three avenues of raising money

1. It can make a profit2. It can sell stocks3. It can sell Bonds

Disadvantages1. MUST get a Certificate of Incorporation2. They are DOUBLE TAXED3. Loss of control is easy4. Far more regulated than other types of

businesses

Versions of CorporationsVertical Corporations

Horizontal Corporations

Conglomerates

Multinational

Cooperative OrganizationsCooperative1. They are voluntary and open2. Members control the organization3. Contributions and benefits are shared

by members1. They don’t pay taxes as long as they

arrange things in a certain way.2. 20% must of profits must be paid to

members.

Co –Op TypesConsumer

Service Producer

Nonprofit OrganizationsUsually benefit the public

Exempt from income tax but the organization must meet certain requirements.

1. Can’t issue stock2. All activities of the group must be devoted to

what the IRS states as qualifications

They can provide support to a particular occupation or geographic area

Types of Nonprofit Organizations

Professional

Business

Trade

Labor Unions