Types of Businesses

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Types of Businesses

• Topic 4014
• Nick Thompson

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4 Types of Business Structures

• Sole Proprietorship
• Partnership
• Cooperatives
• Corporations

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Sole Proprietorship

• Controlled and owned and operated by individual
• Can buy or start business
• Profits are used as owner sees fit
• Business built by personal capital

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Sole Proprietorship Advantages

• Low Start up cost
• Tax advantages to small owner
• In direct control of business
• Minimal working capital requirements
• Little government Regulation
• Profits go to owner

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Sole Proprietorship Disadvantages

• Difficult to raise capital without incurring
  large debt
• Owner is 100 financially liable

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Partnership

• Controlled and owned and operated by 2 or more
  individuals
• Can buy or start business
• Profits are used as agreed upon by partners
• Business built by owners capital

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Partnership Advantages

• Partnerships are easily formed
• Start up costs are low
• Limited government regulation
• More management better decisions
• Some tax advantages
• More than one source of capital

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Partnership Disadvantages

• Partners are 100 financially liable
• Difficult to find partners that easily cooperate
• Limited ability to raise capital
• Disagreements between partners may cause
  confusion with management decisions, employees,
  etc.

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Corporations

• Owned by the Stockholders
• Operated by the board of Directors
• Profits are used as dividends to stockholders or
  as reserves for operations
• Business built by stockholder investment

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Corporation Advantages

• Specialized management Greater efficiency
• Easy to raise capital
• Specific privileges, rights and regulations
• Ownership can be transferred
• Tax advantages
• Limited financial liability

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Corporation Disadvantages

• Very expensive to organize
• Closely regulated by government
• Less personal management lower employee loyalty
  output
• Can be Double Taxed

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Cooperative

• Organized by associates who become owner/members
• State Charter required to start cooperative
• Profits are limited by state law (around 8)
• Members do business through cooperative (group
  advantage)

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Cooperative Differences

• Buys and sells primarily to its own members
• Co-ops sometimes exempt from antitrust
  regulations
• Highly regulated buy government
• Often resented buy other members of the business
  community

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Recap

• 4 Business types- Cooperative Corporations
  Partnership Sole Proprietorship
• Each serves specific purpose and has advantages
  and disadvantages
• All are used for specific purpose, all work well
  for different types of enterprises

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Resources

• MSU Agriscience Website www.agriscience.msu.edu
• Calpoly Agriscience Website www.calpoly.edu/aged/