Economics Ch. 3: Business Organizations
What are the three types of business organizations? Describe each.✔✔
1) Sole proprietorship: A business owned and operated by one person
2) Partnership: A business owned and operated by two or more people.
3) Corporation: A large business not owned by individuals, but that is owned by
many stockholders. This type of business must be approved by the government.
What are the advantages and disadvantages of a sole proprietorship?
✔✔Advantages: Easy to start, easy to manage, profits are not shared, do not pay
income taxes, and easy to end the business.
Disadvantages: The one owner is fully responsible for all losses, difficult to raise
capital ($), the owner often has little experience, and difficult to find qualified
employees.
What are the advantages and disadvantages of a partnership?✔✔Advantages: Easy
to start, easy to manage, lack of special taxes, easily attract capital, larger size
makes it run more smoothly, and easier to attract qualified employees.
Disadvantages: Partners are responsible for each other, the business must be re-
organized if one partner leaves, and the potential for conflict between partners.
What are the advantages and disadvantages of corporations? ✔✔Advantages: Easy
to raise money, professional managers run the company, stockholders (part
owners) are not responsible for losses, unlimited life, and easy to transfer
ownership (stock shares)
