Sole Proprietorships • What role do sole proprietorships play in our economy? • What are the advantages of a sole proprietorship? • What are the disadvantages of a sole proprietorship?
The Role of Sole Proprietorships • A business organization is an establishment formed to carry on commercial enterprise.
The Role of Sole Proprietorships • Sole proprietorships are the most common form of business organization.
The Role of Sole Proprietorships • Most are small. • Generate only about 6% of all US sales. • Owned and managed by a single individual. • Most earn modest incomes. • Many are run part-time.
Characteristics of Proprietorships Page 186
1. Ease of Start-Up Small amount of paperwork and legal expenses. 2. Relatively Few Regulations The least-regulated form of business organization. Advantages of Sole Proprietorships
3. Sole Receiver of Profit After paying taxes, the owner keeps all the profits. 4. Full Control Can run their businesses as they wish. Advantages of Sole Proprietorships
5. Easy to Discontinue Pay off taxes and debt, stop doing business. Advantages of Sole Proprietorships
Limited access to resources such as physical and human capital. Lack permanence. Whenever an owner closes shop, the business ceases to exist. Disadvantages of Sole Proprietorships
Disadvantages of Sole Proprietorships • The biggest disadvantage is unlimited personal liability. Liability is the legally bound obligation to pay debts.
Section 1 Review 1. What is a sole proprietorship? 2. What is an advantage of a sole proprietorship? 3. What is a disadvantage of a sole proprietorship? Want to connect to the PHSchool.com link for this section? Click Here!
Partnerships • What types of partnerships exist? • What are the advantages of partnerships? • What are the disadvantages of partnerships?
Partnerships • Account for 7% of all businesses • 5% of sales • 10% of income
Types of Partnerships Three types of partnerships: 1.General Partnership • partners share equally in both responsibility and liability.
Types of Partnerships Three types of partnerships: 2. Limited Partnership • only one partner is required to be a general partner, or to have unlimited personal liability for the firm.
Types of Partnerships Three types of partnerships: 3. Limited Liability Partnership • A newer type of partnership, all partners are limited partners.
Advantages of Partnerships • Articles of partnership spells rights and responsibilities of each partner. - Uniform Partnership Act – state law that establishes rules of partnership.
Advantages of Partnerships 1. Ease of Start-Up No required agreement, but usually develop articles of partnership. 2. Shared Decision Making and Specialization Bring different strengths and skills to the business.
Advantages of Partnerships 3. Larger Pool of Capital Each partner's assets improve the firm's ability to borrow funds. 4. Taxation Individual partners are subject to taxes, but the business itself does not have to pay taxes.
Disadvantages of Partnerships • Unless it is a limited liability partnership (LLP), at least one partner has unlimited liability. • General partners are bound by each other’s actions.
Disadvantages of Partnerships • Potential for conflict Partners should agree about work habits, goals, management styles, ethics, and general business philosophies.
Section 2 Review • What advantage does a partnership have over a sole proprietorship? • How is a general partnership organized? Want to connect to the PHSchool.com link for this section? Click Here!
Corporations, Mergers, and Multinationals • What types of corporations exist? • What are the advantages of incorporation? • What are the disadvantages of incorporation? • How can corporations combine?
Types of Corporations • A corporation is a legal entity owned by individual stockholders. • Stocks, or shares, represent a stockholder’s portion of ownership (equity) of a corporation.
Types of Corporations • Closely held corporation - issues stock to a limited number of people. • A publicly held corporation - buys and sells its stock on the open market. • 20% of businesses, 90% of sales, 70% of net income
Advantages for the Stockholders Individual investors do not carry responsibility for the corporation’s actions. Shares of stock are transferable, which means that stockholders can sell their stock to others for money. Advantages of Incorporation
Advantages for the Corporation More potential for more growth. Corporations can borrow money by selling bonds. Corporations can hire the best available labor. Corporations have long lives. Advantages of Incorporation
Disadvantages of Incorporation 1.Difficulty and Expense of Start-Up Corporate charters - expensive and time consuming Certificate of incorporation - state license is required
Disadvantages of Incorporation 2. Double Taxation Corporations pay taxes on their income. Owners also pay taxes on dividends.
Disadvantages of Incorporation 3. Loss of Control Managers and boards of directors, not owners, manage corporations. “You can’t fire me, I started Compaq!”
Disadvantages of Incorporation 4. More Regulation More regulations than other kinds of business organizations.
Corporate Combinations • Horizontal mergers combine two or more firms, in same market, same good or service.
Corporate Combinations • Vertical mergers combine two or more in different stages of producing the same good or service
Corporate Combinations • Conglomerate - business combination merging more than three businesses that make unrelated products. • No single business contributing a majority of the revenue. “Hi, I’m Warren Buffett. I started Berkshire-Hathaway.”
Multinationals Multinational corporations (MNCs) are large corporations headquartered in one country that have subsidiaries throughout the world.
Advantages of MNCs Benefit consumers by offering products worldwide. Spread new technologies and production methods. Multinationals
Disadvantages of MNCs Some feel MNCs influence culture and politics. Concern about wages and working conditions. Multinationals
Section 3 Review • Name some advantages of incorporation. • How do horizontal and vertical mergers differ? Want to connect to the PHSchool.com link for this section? Click Here!
Other Organizations • How do business franchises work? • What are the three types of cooperative organizations? • What are nonprofit organizations?
Business Franchises Business franchise Semi-independent business - pays fees to a parent company • exclusive right to sell a certain product or service in a given area.
Franchisers develop products and services. Local franchise owners help to produce and sell those products. Franchises allow owners a degree of control, as well as support from the parent company. Business Franchises
Advantages of Business Franchises Management training and support Standardized quality National advertising programs Financial assistance Centralized buying power Advantages and Disadvantages of Business Franchises
Disadvantages of Business Franchises High franchising fees and royalties Strict operating standards Purchasing restrictions Limited product line Advantages and Disadvantages of Business Franchises
Section 4 Review 1. What is a business franchise? 2. What is a consumer cooperative? Want to connect to the PHSchool.com link for this section? Click Here!