1.

What are the different types of

business organizations?
2. Describe the characteristics of

sole proprietorships,
and corporations .

partnerships,

3. Analyze the advantages and disadvantages of

business organizations.

1. Sole proprietorships one individual

in business for himself.
They make up 72% of all businesses and
take in 5% of total profits.
They are the simplest to form because of
the small amount of capital needed to start up.
Examples are beauticians, dentists, lawyers,
dry-cleaning and lawn care and lemonade stands.

2. Advantages of a Sole Proprietorship

A. Easy to quit the business if the
owner decides to do so. There are
no co-owners to consult.

B. Owners receive the entire profit.

C. Easy to formno complicated legal documents or
complicated tax forms, small amount of capital needed.

Personal satisfaction (psychological-being your

own boss) prestige and a sense of accomplishment.
D. Total control can make decisions
quickly, can hire and fire easily, can
respond quickly to trends.

3. Disadvantages of Sole proprietorships

A. Unlimited liability (debt) - have to forfeit

their personal possessions as well as their
businesses. (auto, other business, house, savings)
B. Burden of sole responsibility must
have business sense.
C. Limited potential for growth collateral (any
thing of value to guarantee a loan [like giving up
your personal possessions) [Lets say you put
your home up for collateral but have to give it up]
I want medical benefits!

D. Difficult to attract qualified employeescant

offer fringe benefits. [Lets say you ask for more benefits]
E. Short life span depends on owners health
and competence. If the owner dies,
dies it is over.

4 Partnership - business
operated by 2 or more people.

They are the least common with only

8% and take in only 11% of profits.
Two Forms of Partnerships

5 1. General equal decision making & unlimited liability

among partners.

6 2. Limited some non-active

partners join as an
investment (and thus have limited liability-just the
investment, not the property). He is a silent partner.

Lets say your silent partner puts up $30,000 to insure the loan.
I gave $30,000 as a silent partner,
so I dont have to do anything.

Advantages of Partnerships
[Two heads are better than one.]

Two Heads

better than

One Head

7 Specialization specific duties assigned to

different partners.
A. Sharing of losses. Can borrow more and can sustain
heavier losses.
B. Easy to form. Small amount of money to start & operate.
C. Shared decision making more informed decisions.
D. Personal satisfaction sense of accomplishment.

8.

Disadvantages of Partnerships

A. Disagreements among partners

conflicts delay decisions, lower employee
morale, & lessen efficiency. Each partner
is responsible for the acts of all other
partners. Must choose good partners.

B. Have to share the profits.

C. Unlimited liability can lose their
business and personal possessions.

D. Limited life sickness, conflicts,

or death can end the partnership.

Take That!

Corporations a business organization

recognized as a separate legal entity (existence).

10 Stockholders are the owners of a corporation who invest

by buying shares.
Stock the certificate of ownership.
ownership
9 Corporations make up about 20% of business organizations
but produce over 90% of total sales.
Corporations can operate like a sole proprietor. Inc. means
the business is a corporation. [Treated by the courts as an
artificial person. They can sue, be sued, enter into contracts,
and pay taxes.
Two Types of Corporations
11 Publicly owned anyone can invest by buying shares,
so unlimited # of owners. Includes most corporations.
12 Closed is owned by a limited number of stockholders.
Ford Motor Company was family owned (closed) until 1956.
They went public in 1956 & issued 10,200,000 shares of stock.
13 Wal-Mart leads all other corporations in sales at $371 billion.

Corporate Trivia
A corporation can be sued but the people who own the
corporation (stockholders)
stockholders can not be sued.
sued
A corporation has potentially perpetual life.
life
1.) Nearly all large companies are corporations.
corporations
2.) Nearly all corporations are small companies.
companies
3.) Therefore, a small minority of corporations constitute
nearly all the large companies.
companies
In other words, of 4 million corporations,
corporations about 2,000 are
large companies,
companies and these 2,000 large corporations
constitute the vast majority of the nations large companies.
companies
Also, the 15% of corporations that do more than $1 million
in sales take in in 85% of the receipts of corporations.
corporations

Where The Jobs Are And Were

2007
1980
1.
2.
3.
4.
5.
6.

Wal-Mart
1,350,000
McDonalds 418,000
Sears Holding 400,000
UPS
355,000
Ford
327,500
GM
325,000

GM
Ford
GE
IT&T

853,000
495,000
405,000
368,000

[International Telephone & Telegraph]

IBM

337,000

Then there are new jobs in new technologies that

didnt exist in 1980. Cisco has 34,000;
34,000 Microsoft
has 55,000;
55,000 Oracle has 40,000;
40,000 & Dell has 46,000
Surviving as a business is no small feat.
1/3 of the firms in the Fortune 500 list in 1970 no longer exist.
exist

If a company had only 200 shares

and you bought a share, you would
own 1/200th of the company.

14 Stockholders (owners)
owners and bondholders (lenders)
enders
For companies, stocks and bonds are 2 ways to raise
money. For consumers, they are a way to earn money.
15 Common stock (owners are voters)
voters gives a voice in how
the corporation is run and a share in variable dividends
high dividends if profits are high. The Board of Directors
may wish to withhold all dividends if the money is needed
for plant expansion or payment on debts. Because they can
vote, they determine how a corporation is managed. They
get one vote for every share they own.
In a good year, they will receive a higher dividend than
preferred stockholders. (Preferred stock dividends are
fixed, common stock is not, so they are taking more risk.
Preferred Stock (non-voters)
non-voters guaranteed dividends that are
paid from profits before the company pays any dividends
on common stock.
If the company is unable to pay this fixed dividend in full,
it makes up the difference when the companys profits
increase. They are like a silent partner because they can
not vote and have no say in how the business is run.

16 Corporate Bonds a certificate issued by a corporation in

exchange for money borrowed from investors. There is a
written promise to repay the amount borrowed at a later
date (an I.O.U.)
I.O.U. lending money for 10, 20, or 30 years.
Bondholders are creditors,
creditors not owners.

17 Advantages of Corporations from a Stockholders Viewpoint

A 1. Limited liability limited to the amount invested. His
personal assets may not be seized to pay corporate debts.
B 2. May earn a profit without working.
18 Advantages From the Corporations Viewpoint
A 1. Separation of ownership from management can hire
the best management available. Specialized talent can be
hired in all areas.
B 2. Easy to raise capital can issue stocks or sell bonds
allowing the corporation to tap the savings of thousands.
C 3. Longevity they have a life independent of their owners.

Disadvantages of a Corporation
Disadvantages from the stockholders point of view.
view
1. When stockholders earn a profit, they feel no great sense
of pride.

19 Disadvantages from the corporations point of view.

view
A 1. Slow in decision making must go thru chain of command.
command
B

2. Many government restrictions must follow regulations of the

SEC, comply with laws on merging and maintain many records.
3. Heavy organizing expenses pay for its charter and then

depending on the state, expenses can run from a few

hundred to thousands of dollars.
D 4. Double taxation when a company distributes profits
(dividends) to its stockholders, they have to pay personal
income tax on dividends in excess of $100. Corporations
earnings are subject to taxation.
The income tax on corporations is 15% on the first $50,000;
25% from $50,001- $75,000; 34% from $75,001-$100,000;
39% from $100,001-$335,000; 35% from 335,001-$10 mil.
38% from 10M-18.3million; & a flat 35% over$18.3 million.

25 Cooperatives voluntary association of people formed

to carry on some kind of economic activity benefiting members.

Different Types of Cooperatives:

1. Producer Coop group of farmers who join to get better

prices for their goods. They eliminate the middle-man charges.
2. Housing Coop formed by members to buy the building
they live in.
3. Purchasing Coop retail store owned and operated by
its customers.
4. Credit Union members pool their savings so they can
borrow from it at lower rates (the most common form of coop)
coop
5. Service Coop provides service to its members
(electrical or telephone)
6. Baby-Sitting Coop families swap baby-sitting duties
without ever exchanging money.

26 Nonprofit Organizations provides products without

making a profit. Churches are the most common.
(Boy Scouts, Y.M.C.A., Salvation Army, & Goodwill)