Transcript Business Organizations Notes


A business owned and run by one person

Most numerous and profitable of three
business types we’ll be talking about

Smallest in size; earn about 1/6 of the net
income earned by all businesses

Almost no start-up costs except for a
license

Can be ran out of your house, over the
internet, or from an office
Advantages
Disadvantages
1. Ease of start up
1. Owner has UNLIMITED LIABILITY
2. Ease of management
2. Difficulty in raising financial
capital (debt, loans)
3. Don’t have to share profits
4. No separate business income
taxes
3. Size and efficiency (employees
and inventory vs. limited
capital)
5. Psychological satisfaction
4. Limited managerial experience
6. Ease of getting out of business
5. Difficulty of attracting qualified
employees
6. LIMITED LIFE

A business jointly owned by two or more
persons

Least numerous in terms of numbers of
firms

General partnership vs. limited
partnership (active in daily running)

Relatively easy to start

Lawyers have to get involved
› Profits
› Debts
› Death of one partner
› End of partnership
Advantages
Disadvantages
1. Ease of establishment
1. Each partner is fully responsible
for acts of all partners
2. Ease of management (different
talents)
2. Limited partners only lose initial
investment; rest of outstanding
3. Lack of special taxes
debt falls to other owner(s)
4. Easier to attract financial
capital because of size)
5. Larger size
6. Easier to attract talented
employees (offer specialized
services)
3. Potential conflict between
partners
Very formal and legal arrangement
 People who want to incorporate must
ask permission from the government.
 If approved, a CHARTER is granted

› Gov’t. document granting permission
› Specifies number of shares of stock that can
be sold
› Sold to stockholders, or shareholders, can
lead to dividends
Advantages
Disadvantages
1. Ease of raising financial capital
(sell stock, bonds (principal and
interest))
1. Difficulty and expense of
getting a charter
2. Directors of a corp. can hire
managers to run the firm
3. Limited liability to owners
2. Owners have little say after they
have voted for board of
directors
4. Unlimited life
3. Must keep detailed
records/treated as a person; a
separate entity
5. Ownership can change easily
4. Heavy government regulation