Business Structures and Legal Forms: Sole Proprietorships, Partnerships, Corporations, Mergers, and Nonprofits

Sole Proprietorship

Business owned & managed by one person; simplest form; 6% of U.S. sales.

Advantages of Sole Proprietorship

Easy start-up, few regulations, full control, sole receiver of profit, easy to discontinue.

Disadvantages of Sole Proprietorship

Unlimited personal liability, hard to raise capital, limited resources & knowledge, business ends if owner retires/dies.

Characteristics of Sole Proprietorship

Most earn modest income, many run part-time.

Partnership

Business owned by 2 or more people; smallest share of U.S. sales.

General Partnership

All partners share responsibility and liability equally.

Limited Partnership

Only one general partner has unlimited liability; other partners have limited liability.

Limited Liability Partnership (LLP)

All partners have limited liability; protects personal assets.

Advantages of Partnerships

Easy start-up, shared decision-making & specialization, larger pool of capital, taxed individually, suitable for professionals.

Disadvantages of Partnerships

Unlimited liability for some partners, bound by each other's actions, potential for conflicts.

Corporation

Legal entity separate from owners; stockholders own shares; majority of U.S. sales.

Closely Held Corporation

Stock owned by a limited number of people; not publicly traded.

Publicly Held Corporation

Stock sold on open market; owned by many shareholders.

Advantages for Stockholders (Corporation)

Limited liability, transferable shares.

Advantages for Corporation

Growth potential, can borrow via bonds, hire skilled labor, unlimited lifespan.

Disadvantages of Corporation

Expensive/complex start-up, double taxation, loss of control, more regulations.

Reinvestment (Corporate Growth)

Using profits to expand operations, improve machinery, or hire better employees.

Mergers

Combining two or more companies to grow, increase efficiency, or diversify.

Horizontal Merger

Combines companies in the same market with the same product/service.

Vertical Merger

Combines companies in different production stages of same product/service.

Conglomerate

Merges 3+ unrelated businesses under one company.

Multinational Corporation (MNC)

Large corporation headquartered in one country with subsidiaries worldwide.

Advantages of MNCs

Offer products worldwide, spread technology & production methods.

Disadvantages of MNCs

May influence culture/politics; concerns over labor practices.

Franchise

Semi-independent business tied to a parent company; pays fees for rights to sell products/services.

Advantages of Franchises

Training & support, standardized quality, national advertising, financial help, centralized buying power.

Disadvantages of Franchises

High fees/royalties, strict standards, purchasing restrictions, limited product line.

Cooperative

Business owned & operated by members for shared benefit.

Consumer Cooperative

Retail outlets owned by members; sell goods at reduced prices.

Service Cooperative

Provide services rather than goods (e.g., credit unions).

Producer Cooperative

Helps members market and sell products (e.g., agricultural co-ops).

Nonprofit Organization

Functions like a business but does not operate for profit; tax-exempt.

Professional Organization

Improves skills, image, and working conditions in a profession (e.g., AMA, ABA).

Business Association

Promotes business interests of a city, state, or group of businesses.

Trade Association

Promotes interests of a particular industry.

Labor Union

Organized group of workers to improve wages, hours, benefits; uses collective bargaining.

SEC (Securities & Exchange Commission)

Regulates stock trading & prevents insider trading.

Public Utility Regulation

Gov't sets rates; utilities are legal monopolies.

Unlimited Liability

Owner is personally responsible for business debts.

Double Taxation

Corporate income taxed, then dividends taxed again.