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The Firm and Its Environment - Coggle Diagram
The Firm and Its Environment
A sole proprietorship
a one-owner
business
Advantages
easy to organize
decisions can be made quickly
owners receive all profits
Difficulties and disadvantages
limited resources to start and operate a business
lack of capital
unlimited liability
the owner must pay the debts
The personal property of the owner can be taken to pay the debts of the business
the limited life of the business
If the owner of a sole proprietorship dies, an entirely new enterprise must be started
A partnership
an association of two or more
people in order to run a business
the characteristics of the sole proprietorship
easy to organize
decisions can be made quickly
profits are shared with only a few people
the owners are responsible for success
or failure of the business
Difficulties
unlimited liability
partners are responsible for the debts of the business
Liability can actually be greater, since each partner is responsible for all the business debts.
limited life
If one partner dies, the business must be dissolved.
the characteristics
contribute equal capital
have equal authority in management
share profits or losses
Corporation
a business that legally has the rights and duties of an individual.
have the right to buy, sell, and own property
may make legal contracts, hire and fire workers, set prices, and be sued, fined and taxed.
must obtain a charter of incorporation from a state legislature to be legally recognized as a corporation
a corporation issues shares of stock
certificates representing ownership in the corporation
Advantages over sole proprietorships and partnerships
limited liability
the stockholders lose only the value of their stock
The stockholders cannot be held personally responsible for any money the corporation owes
the ability to raise very large amounts of money
raise money by selling bonds, as well as stocks
A bond
pay the holder of a bond a certain amount of money on a certain date
do not represent ownership in the corporation
the rate of return on a bond is set when the bond is sold
an unlimited life
the ease of ownership transfer
Disadvantages
the procedure for setting up a corporation is more difficult
a corporation’s profits are subject to double taxation
a corporation must pay stockholders regular dividends
must keep detailed records to satisfy appropriate government agencies
the individual share of profits in the form of dividends is comparatively small
a corporation’s owners do not directly control the business