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BUSINESS ORGANIZATIONS Economic institutions – persons and organizations that use or represent the factors of production Business Organizations – a profit-seeking enterprise that serves as the main link between scarce resources and consumer satisfaction Sole Proprietorships A business owned and run by one person The Most common form of business Strengths • • • • • • Easy to form Easy to manage Profits don’t need to be shared No business income tax Personal “self fulfillment” Easy to go out of business Weaknesses • • • • • Owner has unlimited liability Limited access to capital Limited efficiencies Limited business knowledge Limited access to qualified employees • Limited life of the business Partnerships – a business jointly owned by two or more persons Types of Partnerships • General – all partners are responsible for the management and financial obligations • Limited – at least one partner is not active in the daily running of the business Requires Legal Organization • Articles of partnership • Specifically details “who does, gets and pays what” Partnerships Strengths • Relatively easy to start • Managerial resources • Lack of special taxes (usually only a special schedule) • Economic capital • Efficiencies are easier to accomplish • Talent easier to attract Weaknesses • All partners are responsible for the acts of the partnership (limited partners have limited responsibility) • Limited business life • Potential conflict in management Corporations – a business organization recognized by law as a separate legal entity having all the rights of an individual (buy and sell property, make contracts, be sued, etc.) Permission to form must come from the state or federal government • Charter – government form permitting incorporation • Specifies number of shares (stock) Corporate structure • Stock ownership gives you part ownership in the corp. • Common stock • Preferred stock Corporations Strengths • FINACIAL CAPITAL (stocks and bonds) • Large resources of skilled employees • Shared financial responsibility • Unlimited business life • Easy to transfer ownership Weaknesses • Difficult to start • Limited input by shareholders • Large operating expenses (tax records, etc) • Subject to government regulations and interference