Types of Business

Types of Firms
There are about 25 million for-profit businesses in the United States.Two-thirds are small retail businesses, small service operations, part-time home-based businesses, and small farms. Each year more than a million new businesses start up and almost as many fail. Entrepreneurs orga- nize a firm in one of three ways: as a sole proprietorship, as a partnership, or as a corporation.
Sole Proprietorships
The simplest form of business organization is the sole proprietorship, a single-owner firm. Examples are self-employed plumbers, farmers, and dentists. Most sole proprietorships consist of just the self-employed proprietor—there are no hired employees.To organize a sole propri- etorship, the proprietor simply opens for business by, for example, taking out a classified ad an- nouncing availability for plumbing, or whatever.The owner is in complete control. But he or she faces unlimited liability and could lose everything, including a home and other assets, as a result of debts or claims against the business.Also,since the sole proprietor has no partners or other financial backers, raising enough money to get the business going can be challenging. One final disadvantage is that a sole proprietorship usually goes out of business when the pro- prietor dies. Still, a sole proprietorship is the most common type of business, accounting most recently for 72 percent of all U.S. businesses. Nonetheless, because this type of firm is typically small, proprietorships generate just a tiny portion of all U.S. business sales—only 4 percent.
Partnerships
A more complicated form of business is the partnership, which involves two or more indi- viduals who agree to contribute resources to the business in return for a share of the profit or loss. Law, accounting, and medical partnerships typify this business form. Partners have strength in numbers and often find it easier than sole proprietors to raise sufficient funds to get the business going. But partners may not always agree. Also, each partner usually faces unlimited liability for any debts or claims against the partnership, so one partner could lose everything because of another’s mistake. Finally, the death or departure of one partner can disrupt the firm’s continuity and prompt a complete reorganization.The partnership is the least common form of U.S. business, making up only 8 percent of all firms and 10 percent of all business sales.
Corporations
By far the most influential form of business is the corporation.A corporation is a legal en- tity established through articles of incorporation. Shares of stock confer corporate owner- ship, thereby entitling stockholders to a claim on any profit.