TYPES OF BUSINESSES

Proprietorships, Partnerships, and Corporations

Proprietorships

STRUCTURE

  • Owned and operated by one person
ADVANTAGES
  • 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

ADVANTAGES


  • 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

ADVANTAGES


  • 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