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Economics Unit 3- Business Organization

What is a business organization?
a commercial or industrial enterprise and the people who constitute it”
an individual or group of people that collaborate to achieve certain commercial goals
Sole Proprietorship
-most common form of business organization
-local to the area
-A business owned and managed by a single individual
-Owner earns all profits and is repsosible for all debts
-Over 70% of businesses in the US are sole proprietorships
Advantages of sole proprietorship
Ease of start-up
Relatively Few Regulations
Sole receiver of profit
Full control
Easy to discontinue
Not subject to special taxes
Disadvantages of sole proprietorship
Unlimited personal liability
Liability
Limited access to resources
Lack of permanence
Partnership
A business organization owned by two more persons who agree on a specific division of responsibilities and profits
advantages of partnership
easy to start up
inexpensive
Subject to little government regulation
Shared decision-making and specialization
Larger pool of capital
not subject to special taxes
articles of partnership
legal documents that spells out each partners rights and responsibilities and how profits and losses will be shared.
General Partnership
Most common type
Partners share equally in both responsibility and liability
Limited Partnership
only one partner has unlimited personal liability for the firm’s actions. the other only contributes money and does not actively manage the company. there must be 1 general partner and any number of limited partners.
Limited liability partnership (LLP)
All partners are limited partners. Function like a general partnership, but all partners are limited from personal liability in certain situations.
Disadvantages of partnership
unlimited liability (unless LLP) leaves potential for conflict
Corporations
A legal entity owned by individual stockholders, each of whom faces limited liability for the firm’s debts
Stockholders own stock, a certificate of ownership in a corporation
A corporation has a legal identity separate from that of its owners
Closely Held Corporations
Issue stock to only a few people, often family members
Known as privately held corporations
Publicly Held Corporations
Many stockholders who can buy or sell stock on the open market
Stocks are bought and sold at financial markets known as stock exchanges
Corporate Structure
Stockholders ? board of directors ? chief executive officer (CEO)
Advantages of corporations
Limited Liability for owners
Transferable Ownership
Ability to attract capital (can sell share or bonds)
Long life
Disadvantages of corporations
Expense and difficulty to start up
Double taxation
Potential loss of control by the founders
More legal requirements and regulations

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