TYPES OF BUSINESSES
Proprietorships, Partnerships, and Corporations
Proprietorship
ONE person to operate
Partnership
TWO OR MORE people to operate
Corporation
COMPANY OR GROUP OF PEOPLE to operate
Proprietorships
STRUCTURE
- Owned and operated by one person
- Proprietor has full pride in owning the business and receives all the profits
- Can make quick decisions and not consult a boss
DISADVANTAGES
- Unlimited liability
- Personal assets may be seized to pay any debts
- Difficult to raise money to make the business larger
- Difficulty to attract qualified employees
Partnerships
STRUCTURE
- Legal agreement called Articles of Partnership identifies how much money each partner will play in the business
- The legal agreement clarifies the profits and losses each person will share
- Pride of sharing ownership in a business
- Raises more money than a sole owner
- No corporate income tax
- Each owner brings a talent to the business
- Slightly larger size than a proprietorship
DISADVANTAGES
- Complex legal structure
- If a person is added or removed, a new contract is required
- Unlimited liability
- If company is sued and you cannot pay, you could be responsible for 100% of the damages owed
Corporations
STRUCTURE
- Charter - government document granting permission to organize
- Specifies the amount of stock that will be issued
- Uses the money received from stock sales to set up the business
- The stockholders elect a Board of Directors to act on their behalf
- The Board hires managers to run the corporation on a daily basis
- Easy to raise money and grow a larger business
- Easier to borrow large sums of money
- Can grow to be huge
- Can hire professional managers
- Ownership can be easily transferred
- Limited liability
DISADVANTAGES
- Expensive and complex to set up
- Business owners have very little say in business management
- More regulated by government
- Stockholders are subject to double taxation