Sole Proprietorships

Definition:

A business owned and run by a single individual. It is the easiest form of business to start because it involves almost no requirements except for occasional business licenses and fees.

Advantages:

• Easy to start up.
• Management is relatively simple.
• Decisions do not require approval from a Co-Owner, Boss, or other "Higher-Up".
• Owner can keep the profits of successful management without having to share them with other owners.
• Proprietorship does not have to pay separate business income taxes because the business is not recognized as a separate legal entity.
• Psychological satisfaction people get from being their own boss.
• Easy to get out of business.

Disadvantages:

• Owner has unlimited liability.
• Difficulty of raising a financial capital.
• Size and efficiency.
• Often has limited managerial experience.
• Difficulty of attracting qualified employees.
• Limited life.

Partnerships

A business that is jointly owned by two or more persons.

• General Partnership- All partners are responsible for the management and financial obligations of the business.
• Limited Partnership- At least one partner is not active in the daily running of the business.

Advantages:

• Ease of startup.
• Ease of management.
• Lack of special taxes.
• Can usually easily attract financial capital.
• More efficient operations that come with their slightly larger size.
• Often find it easier to attract top talent.

Disadvantages:

• Each Partner is fully responsible for the acts of all other partners.
• Limited life.
• Potential for conflict between partners.

Corporations:

A form of business organization recognized by law as a separate legal entity with all the rights of an individual.

Advantages:

• Ease of raising a financial capital.
• Limited liability for its owners.
• Directors or the corporation can hire professional managers to run the firm.
• Unlimited life.
• Ease of transferring ownership of the corporation.

Disadvantages:

• Double taxation of corporate profits.
• Difficulty and expense of getting a charter.
• Owners or shareholders have little voice in how the business is run.
• Subject to more government regulation.

Growth Through Reinvestment

• Income Statement- A report showing a business's sales, expenses, net income, and cash flows for a period of time.

Estimating Cash Flow

• Net Income- Funds left over after all of the firm's expenses, including taxes, are subtracted from the sales
• Depreciation- Non cash charge the firm takes for the general wear and tear on its capitol goods.
• Cash Flow- Sum of net income and non cash charges.

Growth through Mergers

• When two companies merge, one gives up its separate legal identity.

Types Of Mergers:

• Horizontal Merger- When firms the produce the same kind of product join forces
• Vertical Merger- When companies involved in different stages of manufacturing or marketing join together.

Conglomerates:

• A firm that has at least 4 businesses each making unrelated products and is responsible for most of its sales.

Multinationals:

• Corporation that has manufacturing or service operations in a number of different countries.