Economics Chapter 8 Business Organization

Corporations differ from sole proprietorships, which have no identity beyond that of the owners

A corporation is defined as an *entry* because it has a legal identity separate from those of its owners.

Partnership

Is a business organization owned by two or more persons who agree on a specific devision of responsibilities and profits 7% of businesses are partnerships They account 5% of sales

Sole Proprietorship

Is a business owned and managed by a single individual 75% are sole proprietorship Get 6% of all sales

What is the most common form of business organization?

Proprietorships

Corporation

a business owned by individual stockholders each of whom face limited liability for the firms debts They account about 20% of all businesses They sell about 90% of all products sold in the 70% of net income is earned in the US

Liability

a legal obligation to pay debts

Fringe Benefit

a payment to employees other than wages and salaries

Difference between closely held corporation and publicly held corporation

*Closely Held Corporation* - stockholders rarely trade their stock, but pass it on within families. *Publicly Held Corporation* - where many stockholders can buy or sell stocks in an open market

3 types of partnerships

*General Partnership*- share equally in both liability and responsibility *Limited Partnership*- *only one* partner has unlimited liability in the firm *Limited Liability Partnership*- *all partners* are limited

5 advantages of sole proprietorship

- Ease to start up - Relatively few regulations - Sole Receiver of profit - Full Control over business - Easy to discontinue

Advantages of partnerships

- Easy to start up - More access to financial capital (loans) - Shared decision making - Shared expenses

Disadvantages of Corporations

- Expense and difficulty of start up - Double taxation - Potential loss of control by the founders - More legal requirements and regulations

Disadvantages of partnerships

- Unlimited Liability - Must be able to get along with one another (potential conflict)

Disadvantages of sole proprietorship

- Unlimited personal liability - Limited access to financial capital - Can't pay fringe benefits - Business dies with business owner

Advantages of Corporations

- limited liability for owners - transferable ownership - ability to attract capital - long life

Zoning laws

an arrangement whereby cities and towns designate separate areas for businesses

Business License

an authorization from the local government to carry on an enterprise (aka. open a business)