LESSON 1

THE NATURE AND FORMS OF

BUSINESS ORGANIZATION
FAST FACT
Seventy percent of small
businesses are owned and
operated by a single person

FAST FACT
If you have $10 in your pocket
and no debts, you are
wealthier than 25% of
Americans.
FAST FACT
Sixty-four percent of
consumers have made a
purchase decision based on
social media content.

FAST FACT

The most productive day of

the workweek is Tuesday.
 STARTING POINT
Throughout human history, people have traded and exchanged
goods and services to fulfill their needs for food, water, clothing, and
shelter. In modern times, these needs have expanded to include
education, safety, transportation, and medicine. With the
improvement of quality of life, opportunities to satisfy people’s
wants have become abundant. Instead of using public transportation
to travel (a need), one might want to drive a car (a want). Or, in place
of using a public pay phone to communicate (a need), one might
want to use the current mobile phone model (a want).
 HISTORY
3,000 years ago.
Business as we know it can be traced back in India and
China, where companies with structures resembling sole
proprietorship, partnerships and corporations. At this time,
they began entering into contracts and owning property,
essentially setting up the basic frameworks of
business that we use today.
 HISTORY
1,500 A.D

We see the first few government- backed companies, like

the Dutch East India Company and British East India
Company, taking on global business challenges and
exchanging goods far away from home.
 HISTORY
Industrial Revolution in 1970

Business changed every 50 years or so, shaped by new

inventions, trade and changing consumer habits.
 FORMS OF BUSINESS ORGANIZATION

One of the first decisions that you’ll have

to make as a business owner is how your
business should be structured. You need to
know the advantages and disadvantages
of each of the different forms of business
organization to make sure you’re making
the right decision for your new business.
SOLE PROPRIETORSHIP

The vast majority of small businesses

start out as sole proprietorship. These
businesses are owned by one person,
usually, the individual who has day- to-
day responsibility for running the
business. Sole proprietors can be
independent contractors, freelancers or
home based businesses.
 SOLE PROPRIETORSHIP ADVANTAGES

Owner receives all the profits.

Profits are taxed only once.

Owner makes all decisions and is in

complete control of the company (could also be a
disadvantage).

Easiest and least expensive form

of ownership to organize.
 SOLE PROPRIETORSHIP DISADVANTAGES

Unlimited liability if anything happens in the

business. Your personal assets are at risk (including
your home in Missouri)

Limited in raising funds and may have to acquire

consumer loans.

No separate legal status.

PARTNERSHIPS
In a Partnership, two or more
people share ownership of a
single business. Like proprietorship,
the law does not distinguish between the business
and its owners. The partners should have a legal
agreement that sets forth how decisions will be
made, profits will be shared, disputes will be
resolved, how future partners will be admitted to
the partnership, how partners can be bought out
or what steps will be taken to dissolve the
partnership when needed.
 PARTNERSHIP ADVANTAGES

Easy to establish (with the exception of developing

a partnership agreement)

Separate protection legal status to give

liability protection.

Profits taxed only once.

Partners may have complementary skills.

 PARTNERSHIP DISADVANTAGES

Partners are jointly and individually liable for the

actions of the other partners.

Profits must be shared with the partners.

Divided decision making.

Business can suffer if the detailed partnership

agreement is not in place.
CORPORATIONS

A corporation is considered by law to be

a unique entity, separate from those
who own it. A corporation can be taxed,
sued and enter into contractual
agreements. The corporation has a life
of its own and does not dissolve when
ownership changes.
 CORPORATION ADVANTAGES

Capacity to hold property and exist as legal

unit or distinct entity.

Exemptions of shareholders from individual liability.

Ability to transfer shares.

Standardized methods for the protection of

shareholders and creditors.
 CORPORATION DISADVANTAGES

Costly to incorporate.

Possibility to takeovers..
THANK
YOU