CHAPTER 7

Business Organizations
SECTION 1: Sole Proprietorships
SECTION 2: Partnerships
SECTION 3: Corporations
SECTION 4: Other Forms of Organizations

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 SECTION 1
Sole Proprietorships

Objectives:
 What are the advantages of establishing a
sole proprietorship?
 What are the disadvantages of establishing a
sole proprietorship?

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 SECTION 1
Sole Proprietorships

Advantages to a sole proprietorship:

 easy to start up
 full control of the business by the owner
 exclusive rights to profits by the owner

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 SECTION 1
Sole Proprietorships
Disadvantages to a sole
proprietorship:
 unlimited liability by the owner
 sole responsibility of the owner to operate
the business
 limited growth potential for the business
 lack of longevity of the firm

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 SECTION 2
Partnerships

Objectives:
 How do general partnerships and limited
partnerships differ?
 What are the advantages of organizing a
partnership?
 What are the disadvantages of organizing a
partnership?

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 SECTION 2
Partnerships
Differences between general
partnerships and limited partnerships:
 General partnerships:
 Partners have equal decision-making authority.
 Each partner has unlimited liability.
 Limited partnerships:
 Partners join as investors.
 Partners have in inactive role in decision making.
 Partners have limited liability.
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 SECTION 2
Partnerships

Advantages of a partnership:
 easy to form
 allow specialization
 lets partners share decision making
 shares business losses between partners

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 SECTION 2
Partnerships

Disadvantages of a partnership:
 unlimited liability by partners
 potential for conflict among partners
 lack of business longevity

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 SECTION 3
Corporations

Objectives:
 How is a corporation formed, and what are
the characteristics of a corporation?
 How is a corporation organized?
 How do stocks and bonds differ?
 What are the advantages and disadvantages
of organizing a corporation?

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 SECTION 3
Corporations

To form a corporation:
 Submit an application for the articles of
incorporation and obtain a corporate charter.

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 SECTION 3
Corporations
Information required by the articles
of incorporation:
 the name and purpose of the proposed corporation
 the address of the corporate headquarters
 the method of fundraising to be used by the
corporation
 the amount of money the corporation expects to raise
 the names and addresses of the major corporate
officers
 the intended life of the corporation
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 SECTION 3
Corporations

Characteristics of a corporation:
 legally distinct from its owners
 treated as an individual—can own property,
hire workers, pay taxes, sue and be sued, and
make and sell products

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 SECTION 3
Corporations

Corporate structure:
 sometimes owned by shareholders
 headed by a board of directors to make decisions
 run by corporate officers—CEO, president, vice
presidents, etc.—who carry out decisions made by
the board
 made up of department heads and other employees
to perform day-to-day tasks

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 SECTION 3
Corporations

Differences between stocks and bonds:

 Stocks:
 represent ownership of the firms
 issued as shares
 Bonds:
 used to raise money
 issued as a certificate in exchange for money
borrowed from an investor
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 SECTION 3
Corporations
Advantages of organizing a
corporation:
 limited liability
 separation of ownership from management
 ease of raising capital
 longevity

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 SECTION 3
Corporations
Disadvantages of organizing a
corporation:
 costly and difficult to obtain a corporate
charter
 number of government regulations to follow
 slow decision-making process

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 SECTION 4
Other Forms of Organizations

Objectives:
 How do vertical combinations differ from
horizontal and conglomerate combinations?
 Why might a business owner decide to open
a franchise?
 What is the customer’s role in a
cooperative?
 How does a nonprofit organization differ
17 from other types of business organizations?
 SECTION 4
Other Forms of Organizations

Difference between vertical combinations and

horizontal and conglomerate combinations:
 Vertical combinations—two or more
companies involved in different production
phases of the same good or service
 Horizontal combinations—two or more
companies produce the same good or service
 Conglomerate combinations—two or more
companies produce unrelated products
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 SECTION 4
Other Forms of Organizations

Benefits of opening a franchise to a

business owner:
 A business owner can reduce the overall costs
associated with starting a business because:
 employee training is often provided by parent
company
 advertising is sometimes paid for by parent
company
 it can use the parent company’s name

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 SECTION 4
Other Forms of Organizations

The customer’s role in a cooperative:

 owns a share in the business
 shares the expense of running the business

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 SECTION 4
Other Forms of Organizations

Differences between a nonprofit

organization and other types of
business organizations:
 not focused on financial gain
 income not taxed by the government

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 CHAPTER 7
Wrap-Up
1. Why is a sole proprietorship the easiest type of
business to establish?
2. How does forming a partnership solve many of the
problems that are associated with sole
proprietorships?
3. Compare stocks and corporate bonds. How do
corporations raise money through stocks and
bonds?
4. Legally, how is a corporation treated as an
individual?
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 CHAPTER 7
Wrap-Up
5. Explain how vertical combinations differ from
horizontal combinations. Describe how Andrew
Carnegie created a vertical combination.
6. How do nonprofit organizations differ from other
forms of business organizations?

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