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In this section, you will learn about the advantages and disadvantages of various forms of business organization.

Content Vocabulary sole proprietorship (p. 62) proprietorship (p. 62) unlimited liability (p. 63) inventory (p. 64) limited life (p. 64) partnership (p. 64) general partnership (p. 64) limited partnership (p. 64) corporation (p. 67) charter (p. 67)

stock (p. 67) stockholder (p. 67) shareholder (p. 67) dividend (p. 67) common stock (p. 67) preferred stock (p. 68) bond (p. 69) principal (p. 69) interest (p. 69) double taxation (p. 69)

Academic Vocabulary

Reading Strategy

Contrasting As you read about business organizations, complete a graphic organizer similar to the one below to show how the three types of business organizations differ from one another.


-adapted from BusinessWeek

Selling to a Different Beat

Marc Weinstein's Amoeba Music store stocks 2.5 million titles, half of which are rare and used vinyl records. With genres ranging from jazz and hip-hop to Hungarian folk music and Pakistani qawwali, Amoeba is Weinstein's alternative to music megastores.

Amoeba's 1990 launch in Berkeley, California, was risky. Still, Weinstein and his two partners staked $325,000 in loans and savings on their vision. The risk yielded sales of $10,000 on opening day. Today the business has stores in Los Angeles and San Francisco. And while most of the industry faces declining sales, Amoeba's sales continue to rise.

For Weinstein and company, the vision is evolving. Soon Amoeba will have its own record label and launch a Web site for music downloads. ■

TVere are three main forms of business organization in the economy today—the sole proprietorship, the partnership, and the corporation. Each offers its owners significant advantages and disadvantages.

The type of business an entrepreneur decides on can have real consequences. If

Marc Weinstein and his co-founders had organized as a corporation instead of a partnership, then the corporation would have to please its stockholders. Instead, the business was organized as a partnership, which allows the partners to set their own criteria for success.

Marianna Day Massey/ZUMA Press sole proprietorship or proprietorship business owned and run by a single person who has the rights to all profits and unlimited liability for all debts of the firm

Skills Handbook

See page R50 for more information on Using Bar and Circle Graphs.

Sole Proprietorships

^MADES^ Sole proprietorships are easy to start, but owners have unlimited liability.

Economics & You Have you ever dreamed of starting your own business? Read on to learn what it takes to own a business.

The most common form of business organization in the United States is the sole proprietorship or proprietorship—a business owned and run by a single individual. Because proprietorships are basically one-person operations, they comprise the smallest form of business and have the smallest fraction of total sales. As Figure 3.1 shows, they are also relatively profitable, as they bring in about one-fifth of the total profits earned by all businesses.

Forming a Proprietorship

The sole proprietorship is the easiest form of business to start because it involves almost no requirements except for occasional business licenses and fees. Most proprietorships are ready for business as soon as they set up operations. You could start a proprietorship simply by putting up a lemonade stand in your front yard. Someone else could decide to mow lawns or open a restaurant. A proprietorship can be run on the Internet, out of a garage, or from an office in a professional building.


As you have learned, a sole proprietorship is easy to start up. If someone has an idea or an opportunity to make a profit, he or she only has to decide to go into business and then do it.

Management also is relatively simple. Decisions do not require the approval of a co-owner, boss, or other "higher-up." This flexibility means that the proprietor can make an immediate decision if a problem comes up.

A third advantage is that the owner can keep the profits of successful management without having to share them with other owners. The owner also has to accept the possibility of a loss, but the lure of profits makes people willing to take risks.

Business Organizations

Number of organizations


Net income (profit)

Net income (profit)

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