There are three major forms of business sole proprietorship, partnership and corporation.

Sole Proprietorship – the most common form, a business owned or managed by one person.
Advantages:

  • ease of starting: usually need a permit or license
  • being your own boss
  • pride of ownership
  • leaving a legacy
  • retention of company profits
  • no special taxes

Disadvantages:

  • liability: the risk of personal loss
  • financial resources: what money do you bring to the business
  • management difficulties
  • time commitment
  • limited growth

Partnership – two or more people legally agree to become co-owners of a business. There are three main types of partnerships, general, limited and master limited.

  • General: all owners share in operating the business and assuming all liability and debt.
  • Limited: an owner who is really only an investor an has no management responsibility or liability.
  • Master Limited: much like a corporation, traded on the stock exchange but avoids the corporate income tax.

Corporation – a legal identity that can act an  have liability apart from its owners. Many people assume that a corporation must be a large company, this way of thinking is false.

Advantages:

  • limited liability
  • raise more money from investors
  • perpetual life: due to the fact they are a separate entity from their owners
  • ease of ownership change
  • separation of ownership and management: able to raise money from investors and stockholders without getting them involved with management.

Disadvantages:

  • initial cost
  • extensive paperwork
  • double taxation: corporate income tax is taxed twice
  • two tax returns: an individual who incorporates must file both a corporate tax return and an individual tax return.
  • difficulty of termination
  • possible conflict with stake holders

 

Definition Franchising – is an agreement by someone with a good idea for a business that sells others the rights to use the business name or sell a product or service in a given location with a specific manner. Some examples of franchise companies are, Burger King, Holiday Inn and Dunkin Donuts. Notice a franchise store front all have an identical color scheme and product / service. This is part of the franchising license. Think of a franchise as a chain of stores.

Definition: Capitalism – the freedom of economic and political systems where citizens are able to freely own businesses, trade and sell. All profits are controlled byCapitalism private owners rather than the state.

1. The right to own private property: People are allowed to buy sell and use land, buildings, machinery, inventions, and other forms of property. People can also pass property to their children.

2. The right to own a business and keep all that business’s profit: (profit = revenue – expenses) Profit is an important incentive for business owners.

3. The right to freedom of competition: This allows multiple businesses of the same type able to function.

4. The right to freedom of choice: People are free to choose where they want to work and what career they want to follow

 

Majority of businesses work primarily for their own prosperity and growth. Their number one goal is to increase revenue, prosper through goods / services and ideas. In order for business to grow and produce revenue they must sell to the community. This allows a better standard of living and freedom of choice. As a company grows they must hire more employees to keep up with demand, this produces more job opportunities. These benefits towards a society are known as the invisible hand.

Example:
A farmer grows his crops, hires locals to help harvest. Then supplies the community with fresh vegetables.