Sole proprietorship A business owned and operated by one person. Approximately 76 percent of all businesses in the U. S. Are sole proprietorships. Advantages of sole proprietorships Easy and inexpensive to create. Owner makes all business decisions. Owner receives all profits. Least regulated form of business ownership. Business itself pays no taxes. Disadvantages of sole proprietorships Owner has unlimited liability for all debts and actions of the business. Unlimited liability: The debts of the business may be paid from the personal assets of the owner. Difficult to raise capital.
Sole proprietorship is limited by his/her skills and abilities. The death of the owner automatically dissolves the business. Partnership A form of business ownership in which two or more people share the assets, liabilities, and profits. Types of Partnerships General partnership: A partnership in which all partners have unlimited personal liability and take full responsibility for the management of the business. Limited partnership: A partnership in which the partners’ liability is limited to their investment. Joint venture: A partnership in which two companies join to complete a specific project.
The partnership ends after a specified period of time. Strategic alliance: A partnership in which two businesses work together for mutual benefit. Advantages of partnerships Shared decision making and management responsibilities. Easier to raise capital than in a sole proprietorship. Few government regulations. Business losses are shared by all partners. Disadvantages of partnerships Partnerships may lead to disagreements. Some entrepreneurs are not willing to share responsibilities and profits. Some entrepreneurs fear being held legally liable for the error of their partners. Each owner has unlimited liability.
Corporation A business that is chartered by a state and legally operates apart from its owners. Types of corporations C-corporation: The most common form of corporation. It protects the entrepreneur from being personally sued for the actions and debts of the corporation. Subchapter S corporation: A corporation that is taxed like a sole proprietorship or partnership. Nonprofit Corporation: legal entities that make money for reasons other than the owner’s profit. Limited Liability Company (LLC): A new form of business ownership that provides limited liability and tax advantages.
Advantages of corporations Can raise money by issuing shares of stock. Offers owners limited liability. Limited liability: Owners are liable only up to the amount of their investments. People can easily enter or leave the business by buying or selling their shares of stock. The business can hire experts to professionally manage each aspect of the business. Disadvantages of corporations Legal assistance is needed to start a corporation. Start-up is costly. Corporations are subject to more government regulations than partnerships or sole proprietorships.
A lot of paperwork is involved in running a corporation. Income is taxed twice. Co-operative Businesses owned and operated by a group of people with a strong common interest Start-up costs are shared among the members of the co-operative Members own and control the business and make all business decisions Advantages of a co-operative Members own and control the business Members share the start-up costs and the running of the business They share the financial risk Members may pay less for goods and services and get more for those they sell Disadvantages of a co-operative.
Because each member only has one vote, members may not want to invest money for expansion Because of the number of members, making decisions can be difficult Members can have conflicts Franchise Franchise: A legal agreement that gives an individual the right to market a company’s products or services in a particular area. Franchisee: A person who purchases a franchise agreement. Franchisor: The person or company who sells a franchise. Initial franchise fee: The fee the franchise owner pays in return for the right to run the business.
Advantages of purchasing a franchise business An established product or service is being provided. Franchisors often offer management, technical, and other assistance. Equipment and supplies may be less expensive. A guarantee of consistency attracts customers. Disadvantages of purchasing a franchise business The cost of franchises may be high, which can reduce profits. Franchise owners are limited in the decisions they can make regarding the business. The performance of other franchises impact on the franchisee. The franchise agreement may be terminated by the franchisor.