Types of Businesses

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.

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Advantages of Sole Proprietorships

Easy to start
Proprietors are

in charge

Proprietors keep

all the profits

Taxes are lower

than a corporation’s

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.

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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

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.

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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

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Disadvantages of Partnerships

Business risk is

shared

Unlimited legal
and financial

liability is shared

If one partner

makes a mistake,

all partners are

responsible

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.

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.

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Advantages of Corporations

Limited liability

Ability to raise

money by

selling stock

Business does
not end when an

owner dies

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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

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.