Business Organization Notes (From Alec Soard)

BUSINESS ORGANIZATIONS

TYPES OF BUSINESSES
0. Sole proprietorship
1. Partnerships
2. Corporations
3. Non-profit

SOLE PROPRIETORSHIPS
•When only one person owns a business
•Advantages
* Easy to start and manage
*No profit sharing
*Tax benefits
•Disadvantages
*Liability, hard to raise money, experience

PARTNERSHIPS
• A business jointly owned by multiple people
• Two kinds of partnerships
•General partnerships
* All partners are responsible for the management and financial obligations for
the business
•limited partnerships
* At least one partner is not active in the daily running of the business
• Advantages
* Easy to start and manage
* More stable-better able to attract talented and easier to gain financing
• Disadvantages
* Liability-each parter is fully responsible for the other
* Potential for conflict
* Lifespan of the business

CORPORATIONS
• Form of a business organization recognized by law as a separate legal entity and has
all the rights and responsibilities of an individual
•
Buy and sell property, sue and be sued
• Have to apply for a charter. Charters contain name and address of company purpose
of business and number of shares to be sold



STOCKS
• Common stock
- Represents basic ownership of a corporation
- You get on vote for each share they own
- Vote is used to elect the board of directors
* Board of directors are who control the policies and goals of a corporation

* They hire the management that runs the company
- Common stock doesn't pay as much in the way of dividends by has potential for large
profit for yourself.

• Preferred stock
- Non-voting ownership of a corporation
- No say in board of directors
- You are paid dividends before the common stock holders
- Usually pays regular guaranteed dividends

CORPORATE ADVANTAGES
• Ease of raising financial capital
- Need more money? Sell more stock or corporate bonds
• Professionalism
- Board of Directors will hire experienced people to run the company
• Limited liability
- As an investor, you are not liability for a company's actions
• Can buy or sell your stocks as you please

CORPORATE DISADVANTAGES
• Difficult and expensive to apply and obtain a charter
- Court fees, lawyers etc.
• Control
- Shareholders have little input over the operations of the company
• Double taxation
- Corp is taxed on its earnings and stockholders pay taxes on dividends
• Highly regulated by government

NON-PROFIT ORGANIZATIONS
• Operate in a business-like manner to promote interests of its members
• Operate similar to corporations:
- Have a charter and Board of Directors
- Don't issue stock or pay dividends
- Don't pay taxes
• Examples
- Churches, Schools, Co-ops

COOPERATIVES
• Consumer Cooperative
- People band together to purchase items in bulk to reduce the price
• Service Cooperative
- People band together to provide a service at a lower cost
• Producer Cooperative
- People band together to promote their products at a lower price.