Types of Business Organizations

By Sam Linker

Sole Proprietorship

  • Owned by one person
  • No legal distinction between the owner and the business
  • Owner is legally accountable for all finances
  • Simple and most flexible business structure

Advantage/Disadvantage

Advantage

Owner keeps all the profits


Disadvantage

Unlimited liability so all assets are at risk

Example and Interesting Details

Ex: Mannings Farm Dairy


Interesting Details about Sole Proprietorship

  1. As long as you are the only owner, this status automatically comes from your business activities
  2. The services and products they purchase and rely on make it possible for millions of their fellow Americans to be gainfully employed by companies of all sizes and types

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Partnership

Characteristics

  • They consist of two or more people
  • 3 types: General, Limited, and Limited Liability
  • Each partner shares in the net income or loss in the partnership
  • Mutual Agency: everyone is 100% responsible for any debt

Advantages/Disadvantages

Advantage

The work can be split up between the partners

Disadvantages

All partners opinions must be heard and compromises must be made

Example and Interesting Detail

Ex: Munley, Munley and Cartwright


Interesting Details

  1. The partnership is the simplest and least expensive co-owned business structure to create and maintain
  2. Every partnership agreement should address three crucial areas: compensation, exit clauses, and roles and responsibilities

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Corporations

Characteristics

  • A corporation is a legal entity and it is a separate entity from its owners who are called stockholders
  • Shares of corporations, whether private or public, are transferable from one person to the other
  • Corporations have full legal capacity to enter into contractual agreements on their own behalf
  • There is a centralized management system

Advantage/Disadvantage

Advantage

shareholders are not liable for any debts incurred or judgments handed down against the corporation.


Disadvantage

Corporate profits may be subject to higher overall taxes since the government taxes profits at the corporate level and again at the individual level

Example and Interesting Details

PepsiCo


  1. PepsiCo has since expanded from its namesake product Pepsi to a broader range of food and beverage brands, the largest of which includes an acquisition of Tropicana in 1998 and of Quaker Oats in 2001, which added the Gatorade brand to its portfolio.
  2. The company has said that it plans to acquire additional health-oriented brands while also making changes to the composition of existing products that it sells
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Franchise

Characteristics

  • Local representative of any organization who markets and conducts the entire marketing activity under complete guideline and support of franchiser in the area allotted to the franchisee
  • The owner retains control over the technique or style with which the product is merchandised
  • The franchiser provides equipment, gives his brand name, undertakes publicity, provide managerial and technical assistance
  • A franchise is a ready made and well established business that needs expansion

Advantage/Disadvantage

Advantage

Offers the independence of small business ownership supported by the benefits of a big business network


Disadvantage

Franchise agreements dictate how you run the business, so there may be little room for creativity

Example and Interesting Details

7-Eleven, Inc

  1. 7‑Eleven, Inc. is the world’s largest convenience store chain operating
  2. Born in 2004, 7-Select-branded products were developed with a lofty goal: to create high-quality items that were equal to or better than national brands but at prices 10 to 20 percent less.

Non-profit Organization

Characteristics

  • They tend to be either member-serving or community-serving
  • They have a mission to make a difference to society and use all of their revenue toward that goal
  • The oversight of non-profit organizations remains with the board of directors or trustees
  • Non-profit organizations are often dependent on ‘third-party” funding – funding from a source other than the recipient of their services

Advantages/Disadvantages

Advantage

Tax-exempt status so they do not have to pay federal taxes on their net income


Disadvantage

Scrutiny by the public: A nonprofit is dedicated to the public interest; therefore, its finances are open to public inspection. The public may obtain copies of a nonprofit organization’s state and Federal filings to learn about salaries and other expenditures.

Example and Interesting Details

Ex: Goodwill Industries

  1. Provides job training, employment placement services, and other community-based programs for people who have disabilities
  2. Have many operations that are aimed to towards employment opportunities for all kinds of race, gender, and sexuality

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