Sole Proprietorships

1
Sole Proprietorships

• What role do sole proprietorships play in our
  economy?
• What are the advantages of a sole proprietorship?
• What are the disadvantages of a sole
  proprietorship?

2
The Role of Sole Proprietorships

• A business organization is an establishment
  formed to carry on commercial enterprise.

3
The Role of Sole Proprietorships

• Sole proprietorships are the most common form of
  business organization.

4
The Role of Sole Proprietorships

• Owned and managed by a single
• individual.

• Most are small.
• Generate only about 6 of all US sales.

• Most earn modest incomes.
• Many are run part-time.

5
Characteristics of Proprietorships

• Page 186

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Advantages of Sole Proprietorships

• 1. Ease of Start-Up
• Small amount of paperwork and legal expenses.
• 2. Relatively Few Regulations
• The least-regulated form of business organization.

7
Advantages of Sole Proprietorships

• 3. Sole Receiver of Profit
• After paying taxes, the owner keeps all the
  profits.
• 4. Full Control
• Can run their businesses as they wish.

8
Advantages of Sole Proprietorships

• 5. Easy to Discontinue
• Pay off taxes and debt, stop doing business.

9
Disadvantages of Sole Proprietorships

• Limited access to resources such as physical and
  human capital.

• Lack permanence. Whenever an owner closes shop,
  the business ceases to exist.

10
Disadvantages of Sole Proprietorships

• The biggest disadvantage is
• unlimited personal liability.
• Liability is the legally bound
• obligation to pay debts.

11
Section 1 Review

• 1. What is a sole proprietorship?
• 2. What is an advantage of a sole proprietorship?
• 3. What is a disadvantage of a sole
  proprietorship?

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12
Partnerships

• What types of partnerships exist?
• What are the advantages of partnerships?
• What are the disadvantages of partnerships?

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Partnerships

• Account for 7 of all businesses
• 5 of sales
• 10 of income

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Types of Partnerships

• Three types of partnerships
• 1. General Partnership
• partners share equally in both responsibility and
  liability.

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Types of Partnerships

• Three types of partnerships
• 2. Limited Partnership
• only one partner is required to be a general
  partner, or to have unlimited personal liability
  for the firm.

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Types of Partnerships

• Three types of partnerships
• 3. Limited Liability Partnership
• A newer type of partnership, all partners are
  limited partners.

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Advantages of Partnerships

• Articles of partnership spells rights and
  responsibilities of each partner.
• - Uniform Partnership Act state law that
  establishes rules of partnership.

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Advantages of Partnerships

• 1. Ease of Start-Up
• No required agreement, but usually develop
  articles of partnership.
• 2. Shared Decision Making and Specialization
• Bring different strengths and skills to the
  business.

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Advantages of Partnerships

• 3. Larger Pool of Capital
• Each partner's assets improve the firm's ability
  to borrow funds.
• 4. Taxation
• Individual partners are subject to taxes, but the
  business itself does not have to pay taxes.

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Disadvantages of Partnerships

• Unless it is a limited liability partnership
  (LLP), at least one partner has unlimited
  liability.
• General partners are bound by each others
  actions.

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Disadvantages of Partnerships

• Potential for conflict
• Partners should agree about work habits,
  goals, management styles, ethics, and general
  business philosophies.

22
Section 2 Review

• What advantage does a partnership have over a
  sole proprietorship?
• How is a general partnership organized?

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23
Corporations, Mergers, and Multinationals

• What types of corporations exist?
• What are the advantages of incorporation?
• What are the disadvantages of incorporation?
• How can corporations combine?

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Types of Corporations

• A corporation is a legal entity owned by
  individual stockholders.
• Stocks, or shares, represent a stockholders
  portion of ownership (equity) of a corporation.

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The Corporation
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Types of Corporations

• Closely held corporation - issues stock to a
  limited number of people.
• A publicly held corporation - buys and sells its
  stock on the open market.
• 20 of businesses, 90 of sales, 70 of net
  income

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Advantages of Incorporation

• Advantages for the Stockholders
• Individual investors do not carry responsibility
  for the corporations actions.
• Shares of stock are transferable, which means
  that stockholders can sell their stock to others
  for money.

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Advantages of Incorporation

• Advantages for the Corporation
• More potential for more growth.
• Corporations can borrow money by selling bonds.
• Corporations can hire the best available labor.
• Corporations have long lives.

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Disadvantages of Incorporation

• 1. Difficulty and Expense of Start-Up
• Corporate charters - expensive and time consuming
  
• Certificate of incorporation - state license is
  required

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Disadvantages of Incorporation

• 2. Double Taxation
• Corporations pay taxes on their income.
• Owners also pay taxes on dividends.

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Disadvantages of Incorporation

• 3. Loss of Control
• Managers and boards of directors, not owners,
  manage corporations.

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32
Disadvantages of Incorporation

• 4. More Regulation
• More regulations than other kinds of business
  organizations.

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Corporate Combinations

• Horizontal mergers combine two or more firms, in
  same market, same good or service.

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Corporate Combinations

• Vertical mergers combine two or more in different
  stages of producing the same good or service

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Corporate Combinations

• Conglomerate - business combination merging more
  than three businesses that make unrelated
  products.
• No single business contributing a majority of the
  revenue.

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away.
36
Multinationals
Multinational corporations (MNCs) are large
corporations headquartered in one country that
have subsidiaries throughout the world.
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Multinationals

• Advantages of MNCs
• Benefit consumers by offering products worldwide.
  
• Spread new technologies and production methods.

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Multinationals

• Disadvantages of MNCs
• Some feel MNCs influence culture and politics.
• Concern about wages and working conditions.

39
Section 3 Review

• Name some advantages of incorporation.
• How do horizontal and vertical mergers differ?

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40
Other Organizations

• How do business franchises work?
• What are the three types of cooperative
  organizations?
• What are nonprofit organizations?

41
Business Franchises

• Business franchise
• Semi-independent business
• - pays fees to a parent company
• exclusive right to sell a certain
• product or service in a given area.

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Business Franchises

• Franchisers develop products and services.
• Local franchise owners help to produce and
  sell those products.

• Franchises allow owners a degree of control, as
  well as support from the parent company.

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Advantages and Disadvantages of Business
Franchises

• Advantages of Business Franchises
• Management training and support
• Standardized quality
• National advertising programs
• Financial assistance
• Centralized buying power

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Advantages and Disadvantages of Business
Franchises

• Disadvantages of Business Franchises
• High franchising fees and royalties
• Strict operating standards
• Purchasing restrictions
• Limited product line

45
Section 4 Review

• 1. What is a business franchise?
• 2. What is a consumer cooperative?

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