Business Organization Lecture Part 1

Business Organization Lecture Part 1


This is the video lecture on business organization.
In this video we’re going to talk about different types of business organizations talk about
the different options and also a little bit about the advantages and disadvantages because
none of these are actually perfect they all have their ups and downs and it’s really up
to the business itself to decide the best way to organize. So if you want to overview
business types they’re basically four main business types that we’re going to talk about
in this lecture. The first type is the sole proprietorship then we going to talk about
the partnership then limited partnership and then finally corporation. So the first type
of business is a sole proprietorship. This is a very popular and very common way to organize
business and if you want to define a sole proprietorship it’s actually very simple and
very easy to define. It is essentially a business with only one owner. Thats really the key
defining characteristic and of course like I said it’s a very common type business. There
are probably more sole proprietorships than any other type business and also it’s a very
straightforward in very simple way to organize a business. So if you decide to organize proprietorship
what are the advantages. Well there’s really two big advantages. The first Advantage’s
total control as the sole proprietor alternately you have the final say in all the decision-making
and it�s up to you if you would like to consult with other people and get there advise
and listen to their suggestions but alternately you do have the final say so you do have their
total control. Then the other positive would have to do with profits. If the business is
a success and if after paying out all your experiences it does turn a profit you actually
get to keep all their profit for yourself as the sole proprietor. So both of those would
be to tremendous advantages of that form business but at the same time everything has its disadvantages
and a proprietorship definitely has several those. First to all you are limited in terms
of financing. As the sole owner you would be limited to just the money that you could
come up with is an individual so that’s a limitation. It doesn’t necessarily mean that
you will have a successful business but it does mean that it would be hard at least initially
to come up with a tremendous amount of financing. Also limited ideas being the only owner you
have certain experiences you have certain ideas but you could be somewhat limited in
terms of the scope. Another big disadvantage will have to do with losses and just like
we spoke earlier about profits if the sole proprietor receives all the profits then it
stands to reason that they would also be responsible for all the losses. So if some unfortunate
reason happens to strike and you do actually lose money you would be completely responsible
for all those losses. Then in that gets us down to the final disadvantage which is perhaps
the biggest and that is the fact that as a sole proprietor you do face unlimited liability.
When you see that phrase unlimited liability the key word is liability. See to be liable
means to be responsible so if you face unlimited liability that means there’s potentially no
end to the extent to which you might be held responsible and not only could you lose business
assets and the money that you invested in the business but there’s potentially no end
and you could even potentially lose personal property in personal assets as well. So that
is a pretty tremendous disadvantage to the proprietor form of business. Now moving on
to another type. You also have the option have organizing as a partnership. A Partnership,
if you wanted a very clear and very simple definition, would simply be a business that
has more than one owner. So it could be two could be two hundred it doesn�t really matter
but it is a situation partnership with multiple owners more than one. Just like a proprietorship
this is a pretty common form of business a pretty common way to organize a business but
it is a little bit more complicated than a simple proprietorship. In terms of advantages
there are several first of all you would have the ability to finance you would have the
ability to raise more money because rather than being limited to just the money that
you can come up with is an individual you have all the partners who could potentially
contribute money to the business. You also have more potential for ideas. You have multiple
people involved and they have different ideas different experiences that they could bring
to the business. You also have the ability to divide losses. So rather than the situation
as a proprietor where you would be responsible for all the losses in a partnership everyone
takes on their equal share of the losses. Then finally the workload lot of people don’t
realize until they start business what a tremendous amount of work load is involved and of course
in a partnership you have the ability to split that workload up among all the partners so
that can be a big advantage. In terms of disadvantage though there are several. The first would
be potential for disagreements. You know you have different people involved they have different
experiences different ideas and along with that they may have different opinions about
how to run the company. So that could lead to disagreements and it could even lead to
some pretty difficult working conditions. Then on the other side profit we talked about
loss well if you get to split the loss among the partners unfortunately you have to split
the profits among our partners so that’s a little bit the disadvantage. Again just like
before with proprietorship you do also face the unlimited liability and then you also
face and new disadvantage and this is an advantage that you see many times with partnerships
this is called mutual agency. This is both an advantage and a disadvantage because in
a partnership all the partners have the authority to conduct business on behalf of the partnership.
Well that could be a good thing but at the same time it could be a disadvantage because
the various partners to go out there and take on additional clients go out there and make
purchases and make decisions that may not necessarily be in the best interest of the
partnership and because of that mutual agency and the fact that all the partners have that
authority to be an agent of the business whatever decisions they make you’re stuck with it.
So if they go out and purchase things they go out and take on additional clients you
know if they do things that are beyond the capabilities of the partnership you’re going
to be held accountable held responsible so that could be a problem potentially. Another
option for organizing a business would be to organize as a limited partnership. This
is a variation on the classic partnership format. In this type of organization you actually
would have two different types of partners. You would still have the general partners
just like we talked about before on a partnership but you also have a new classification and
those would be the limited partners. Now these limited partners they’re going to be involved
they’re going to contribute money they’re going to be somewhat involved in the decision-making
and if we are profitable they will certainly share in the profits then again if we lose
money they’ll have to take their share the loss but ultimately the big advantage for
the limited partner is that they only face limited liability so they are held accountable
but only in a very limited way. In fact worst case scenario a limited partner would only
lose the business assets the money that they have advanced and have provided to the business
their personal assets would actually be off limits. So there can be a very attractive
way for someone to get involved with the business without taking such a huge risk. So that’s
another way to organize business.

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About the Author: Oren Garnes

12 Comments

  1. is there a way on heaven and earth i could form an easy to set up business (likey as the sole proprietor and not with complications of forming as the company) and still have limited liabilites to the extent of my capital contribution to the business.

  2. I've begun a campaign to contact all the business associations in America to get the ball rolling on them refusing to deduct "taxes" from their employees' paychecks. It's not their responsibility anyway – they're not government agencies. We can pay our own "taxes".

    Or not.

    The problem is they're just too goddamned cowardly and too entrenched in "going along to get along" to do the right thing. Since most businesses are reputed to be "conservative" – and since communization is counter to the ends of business and capitalism – business owners should be our first bulwark against the communization of America.

    Which is what our "taxes" have paid for the last century.

    deanberryministry.com

  3. Point of correction according to the acts it has only the minimum number of 2 and maximum number of 20

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