Types of Businesses

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Chapter 22.1

• Types of Businesses

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Proprietorships

• The most common form of business organization in
  the U.S. is the sole-proprietorship a business
  owned and operated by one person.
• A proprietorship is the easiest form of business
  to set up. Anyone can start a proprietorship
  whenever they want to.
• Sole proprietors fully own the business and
  receive all of the profits. They can make
  decisions quickly, without having to consult
  others.

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• However, the owner has unlimited liability the
  owner is financially responsible for all debts of
  the business. The owners personal assets may be
  seized to pay the debts.
• Sole proprietors have trouble raising financial
  capital the money needed to help the business
  grow. They may also have trouble attracting
  qualified employees because they may not be able
  to match the salaries and benefits of bigger
  companies.

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Partnerships

• A partnership is a business owned by two or more
  people.
• The articles of partnership is the legal
  agreement among partners that starts the
  business. It identifies how much money each will
  contribute, how they will share profits and what
  role each will play. It describes how to add or
  remove partners and how to break up the business
  if they want to close it.

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• Partnerships can raise money more easily by
  borrowing or adding new partners. Like
  proprietors, partners pay no corporate income
  tax. Partners bring a range of talents to the
  business.
• Partners have unlimited liability. Each is fully
  responsible for all business debts.

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Corporations

• A corporation is a business that has many of the
  rights and responsibilities of individuals. It
  can own property, sue and be sued. It must pay
  taxes, but cannot vote.
• A corporation starts with a charter a govt
  document granting permission to organize. It
  describes the business and specifies the amount
  of stock or ownership shares of the corporation,
  that will be issued. The stockholders who buy
  the shares own the business.

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• Stockholders elect a board of directors, which
  hires managers to run the business. A
  corporations owners and managers are different
  groups of people.
• Corporations can raise money by selling new
  shares of stock. They can also borrow more
  easily than can proprietorships or partnerships.
  The ease of raising capital enables them to grow
  very large.

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• Professional managers run corporations. If the
  managers do not succeed, the board can replace
  them.
• Ownership can be easily transferred by simply
  buying and selling stock.
• Corporations have limited liability. Only the
  corporation, not its owners, are responsible for
  the debts of the business. Individual
  stockholders can lose no more than the amount of
  their investment.

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• Corporations are often expensive and complex to
  set up.
• Owners have little say in the management of the
  corporation.
• Corporations are subject to more govt regulation
  than other forms of business. They must release
  detailed financial reports regularly to keep
  stockholders informed.

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• Stockholders are subject to double taxation.
  First the corporation pays a tax on its profits.
  Then stockholders must pay income tax on the
  profits distributed to them.
• A nonprofit organization, such as a church or
  social service agency, operates in a businesslike
  way to promote the interests of its members.

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• A cooperative is a voluntary association formed
  to carry out some kind of economic activity to
  benefit its members. A consumer cooperative buys
  goods in bulk for its members. A producer
  cooperative helps members promote or sell their
  products.