TYPES OF BUSINESSES

SOLE PROPRIETORSHIP

A business that is owned and managed by one individual who

receives all the profits and bears all the losses.

Benefits: Sole Proprietorship

• Ease of starting and going out of business

• Control over profits and business operations

• Pride of ownership

• Lower taxes (pays no corporate income taxes)

Costs: Sole Proprietorship

• Unlimited liability

• Difficulty in raising financial capital

• Responsible for all losses

• Management knowledge may be limited

PARTNERSHIP

A business that is owned and managed by two or more

individuals who receive all the profits and bear all the losses.

Benefits: Partnership

• Easier to raise financial capital

• Partners may combine managerial skills

• Personal satisfaction

• Lower taxes (pays no corporate income taxes)

Costs: Partnership

• Unlimited liability

• Shared profits

• Possible conflicts between partners

• Possible instability after death of a partner

CORPORATION

A business that is owned by stockholders and has rights and

responsibilities as if it were a person.

Benefits: Corporation

• Limited liability

• Greater financial capital

• Unlimited life

• Specialized management

Costs: Corporation

• Increased taxation (pays corporate income taxes)

• Difficulty in starting (each state has its own rules for a corporate charter)

• May be larger, more bureaucratic than other forms of business

• Increased government control

Which type is best?

• Depends on your situation!

• They all have strengths and weaknesses.

• What is your opinion?

Profit vs Non Profit• Profit: is the money a business makes after all the Expenses

– Regardless of whether the business is a couple of kids running lemonade stand or a publicly traded multinational company.

• A for profit business: is one that uses it’s surplus revenues how ever it likes.

• A non profit business: is an organization that uses surplus revenues or donations to achieve its goals rather than distributing them as profit or dividends

Attributes of a for profit business• Their success is often measured by how much

money they make.• Always have paid employees.• Business is run off of their companies capital.• Any profit that is gained goes to the business’s

owners and can be distributed however they like.• Owned by one or more people.

Attributes of a non profit business

• Their success is often measure by how well they are accomplishing their goals.

• Not always but usually have paid employees• Run off of their companies capital, which many times

includes large donations from outside sources.• Are permitted to generate surplus revenues, but it

must be reinvested in the business. The owners can’t retain it for themselves and it’s not for giving employees bonuses.

• Usually governed by a board of directors