Types of Businesses

Chapter 6
Business
Ownership and
Operations

Section 6.1
Types of Business
Ownership

Organizing a Business

The three main types of business
organizations are:

Sole

Proprietorships

Partnerships

Corporations

U.S. Sole
Proprietorships,
Partnerships, and
Corporations

Figure 6.1

Sole Proprietorships

sole proprietorship
a business owned by one
person

About three-quarters
of all businesses in
the United States are
sole proprietorships.

Multiple Choice

What is a sole proprietorship?

• A business owned by two or more people

• A business with one owner

• A business owned by the government

Graphic Organizer

Advantages of Sole Proprietorships

Easy to start
Proprietors are

in charge

Proprietors keep

all the profits

Taxes are lower

than a corporation’s

Multiple Choice

What is an advantage of a sole proprietorship?

• Ability to raise capital quickly

• Limited liability

• Keep all of the profit

• Ability to make decisions quickly and easily

Sole Proprietorships

unlimited liability
when the owner is
responsible for the
company’s debts

A major disadvantage
of owning a sole
proprietorship is that
the owner has
unlimited liability.

Multiple Choice

What is unlimited liability?

• The owner is not responsible for any debt.

• A type of insurance policy that covers all potential losses.

• The owner is not liable for any damages caused by the company.

• The owner is responsible for the company's debt

Graphic Organizer

Disadvantages of Sole Proprietorships

Limited access

to credit

Many run out

of money

The owner may not have

the necessary skills

The business ends
when the owner dies

Multiple Choice

Which one is NOT a disadvantage of a sole proprietorship?

• Taxes are lower than corporations

• Many run out of money

• Limited access to credit

• The business ends when the owner dies

Partnerships

partnership
a business owned by two
or more people who share
its risks and rewards

To start a
partnership, you
need a partnership
agreement.

Multiple Choice

What is a partnership?

• A legal agreement between two or more parties

• A type of business organization where profits and losses are non-existant

• A form of marriage where two people are joined together in a union

• A business owned by two or more people

Graphic Organizer

Advantages of Partnerships

Easy to

start

Easier to

obtain capital

Easier to

obtain credit

Not dependent

on a sole

person

Only taxed once

Diversity in

skills

Graphic Organizer

Disadvantages of Partnerships

Business risk is

shared

Unlimited legal
and financial

liability is shared

If one partner

makes a mistake,

all partners are

responsible

Open Ended

Tell me one advantage and one disadvantage of a partnership

Corporations

corporation
a company that is
registered by a state and
operates apart from its
owners

To form a
corporation, the
owners must get a
corporate charter from
the state where their
main office will be
located.

Multiple Choice

What is a corporation?

• A group of people who work together to achieve a common goal

• A company that is registered by a state and operates apart from its owners

• A large business organization that is owned by shareholders

• A government-run organization that provides services to the public

Corporations

limited liability
holds a firm’s owners
responsible for no more
than the capital that they
have invested in it

Limited liability is a
major advantage of a
corporation.

Multiple Choice

Why is limited liability a major advantage of a corporation?

• The firm's owners are only responsible for the capital they invested in the company

• Corporations are able to raise large amounts of capital quickly.

• Corporations are able to take advantage of economies of scale.

• Corporations are able to spread risk across multiple shareholders.

Graphic Organizer

Advantages of Corporations

Limited liability

Ability to raise

money by

selling stock

Business does
not end when an

owner dies

Graphic Organizer

Disadvantages of Corporations

Double taxation

More government regulation

Difficult and
costly to start

1.

Income is taxed.

2.

Stockholders pay taxes on
profits issued to them

Multiple Choice

Which one is a disadvantage of a corporation?

• Double taxation

• Limited liability

• Ability to raise money by selling stocks

• Business doesn't end when an owner dies

Other Ways to Organize a Business

Other ways to organize a business include:

Cooperative

Nonprofit

Organization

​Franchise

Other Ways to Organize a Business

cooperative
an organization that is
owned and operated by its
members

The purpose of a
cooperative is to
save money on the
purchase of certain
goods and services.

Other Ways to Organize a Business

nonprofit organization
a type of business that
focuses on providing a
service, not making a profit

A nonprofit
organization does
not pay taxes because
it does not make a
profit.

Other Ways to Organize a Business

franchise
a contractual agreement to
use the name and sell the
products or services of a
company in a designated
geographic area

To run a franchise,
you have to invest
money and pay
franchise fees or a
share of the profits.