FORMS OF BUSINESS

ORGANISATION
 A business entity is an organization that
uses economic resources or inputs to
provide goods or services to customers
in exchange for money or other goods
and services.
TYPES OF BUSINESS ORGANISATION:
1. Service Business
2. Merchandising Business
3. Manufacturing Business
4. Hybrid Business
SERVICE BUSINESS
A service type of business
provides intangible
products (products with no physical
form). Service type firms offer
professional skills, expertise,
advice, and other similar products.
Examples : salons, repair shops,
schools, banks, accounting firms,
and law firms.
MERCHANDISING BUSINESS
This type of business buys products at
wholesale price and sells the same at retail
price. They are known as "buy and sell"
businesses. They make profit by selling the
products at prices higher than their
purchase costs. A merchandising business
sells a product without changing its form.
Examples are: grocery stores, convenience
stores, distributors, and other resellers.
MANUFACTURING BUSINESS
Unlike a merchandising business, a
manufacturing business buys products with
the intention of using them as materials in
making a new product. Thus, there is a
transformation of the products purchased.
A manufacturing business combines raw
materials, labor, and factory overhead in its
production process. The manufactured goods
will then be sold to customers.
HYBRID BUSINESS
Hybrid businesses are companies that may be
classified in more than one type of business. A
restaurant, for example, combines ingredients in
making a fine meal (manufacturing), sells a cold
bottle of wine (merchandising), and fills customer
orders (service).
Nonetheless, these companies may be classified
according to their major business interest. In that
case, restaurants are more of the service type –
they provide dining services.
FORMS OF BUSINESS ORGANISATION
• Sole Proprietorships
• Partnerships
• Corporations
• Limited Liability Companies (LLC)
• Subchapter S Corporations (S Corporations)
SOLE PROPRIETORSHIPS
 A sole proprietorship is the most common form of
business organization. It's easy to form and offers
complete control to the owner. But the business owner is
also personally liable for all financial obligations and
debts of the business. 

As a sole proprietor you can operate any kind of

business as long as you are the only owner. It can be full-
time or part-time work. This includes operating a: 
• Shop or retail trade business
• Large company with employees
• Home-based business
• One-person consulting firm

This is a one person

business run by
the owner with his/her own
 Advantages
1. Formation Very easy to
& form/dissolve. It can be
Dissoluti easily changed into
on partnership, ltd
company etc.
2. Sole traders have full
Managem control of how business
ent & is run. Decision making
finance is quick. Financial
records do not have to
be revealed to the
public.
3. Profit & risk Keeps all profit.
Takes all the risk.
Disadvantages
If he/she dies then so does the
business
Long working hours are
common and holidays are
difficult to arrange due to the
commitment needed to be a
successful sole trader.
Can be difficult to raise all start
up finance and as a result loans
are required. They can be
expensive on the business start
ups
Takes all risk. They have
unlimited liability. They may
lose assets in the event of a
debt needing to be paid.
 STOP AND THINK

If you started your own

business what would it be?

LABOUR
LAND

CAPITAL
E n tr
epr
ene
ur
 PARTNERSHIP
A partnership is the relationship existing between two
or more persons who join to carry on a trade or business.
Each person contributes money, property, labor or skill,
and expects to share in the profits and losses of the
business. 

Each partner reports his share of the partnership net profit

or loss on his personal tax return. Partners must report
their share of partnership income even if a distribution is
not made.
 
Partners are not employees of the partnership and so taxes
are not withheld from any distributions. Like sole
proprietors, they generally need to make quarterly
Is antaxagreement
estimated payments if theybetween pe 2 aor
expect to make more
profit.
  into business with a view to making a p
can be no less than 2 members and no m
 TYPES OF PARTNERSHIP
General Partnership: (most common type) all partners
are responsible for management and the financial
responsibilities of the partnership.
Limited Partnership: at least one partner is not active
in the day to day running of the business. They
have limited liability.

Articles of Partnership: contract between partners

spelling out the rules of partnership.
Dividing profit
Dividing responsibility
Admitting new partners
Buying out partners
 Advantages Disadvantages
1.Formation Easy to form. You can If a partner leaves or a
& start immediately, partnership ends a new
Dissolution however if business partnership must be
name is different to agreed.
that of partners you
must register the
company name.
2. Decision making is Disagreements can easily
Managemen shared. occur.
t & finance Responsibility is If someone dies the
shared. business is
Financial details not discontinued.
open to be viewed
by public
3. Profit & Extra capital available Unlimited liability, each
risk to finance the partner is responsible for
business the debts of the business
Profits must be shared
between partners
CORPORATIONS
A corporation is a business organization that has
a separate legal personality from its owners.
Ownership in a stock corporation is represented
by shares of stock. A corporate structure is more
complex than other business structures. It
requires complying with more regulations and tax
requirements. 
The corporation becomes an entity that handles
the responsibilities of the business. Like a person,
the corporation can be taxed and can be held
legally liable for its actions. If you organize your
business as a corporation, you are generally not
personally liable for the debts of the corporation.
(Exceptions may exist under state law.) 
 CORPORATION- SET UP
Incorporate: to form a corporation.
Charter: a document granted by the state giving a
corporation the right to do business
Stock: shares of ownership in the corporation
Stockholders (shareholders): owners of stock.

Reasons to own stock:

Dividends: share of corporate profits paid to
stockholders
Speculation: buy in hope that price of stock will
increase.
 CORPORATION- OWNERSHIP
Common Stock is a basic share of ownership in a
corporation
 Have voting rights in the management of the company
 In reality they turn over voting rights to someone else
with a proxy: giving someone else the right to vote
your share of stock.
Preferred Stock:
 Non voting shares of ownership
 Guaranteed dividend
 Liquidation benefit: If corporation goes out of
business they are ahead of common stockholders in
getting back money.
 Board of Directors: duty to direct the corporations
business by setting board policies and goals
Elected by common stockholders
Hires a professional management team to run day to day
 CORPORATIONS
Advantages of a corporation: Disadvantages of a
corporation:
Ease of raising financial capital
(main advantage)
Selling stock to investors Start up expenses are high.
Selling bonds: a written promise to
repay a loan on a specific date Stockholders (owners) have a
Principal: the amount borrowed
Interest: the price paid for the use limited
of another’s money
Borrowing money from banks. Profits are taxed
Ability to hire
Limited liability Corporations are subject to
Unlimited life more government regulations
Ease of transferring ownership:.
Buying and selling stock is easy than sole proprietors or
and is done millions of times a day
partners