Page 169 - Introduction to Business

CHAPTER 4 Small Business and Entrepreneurship 143

control over the enterprise. Many times pro-
prietorships are family businesses that are
later passed on to children and relatives.
Another early stage business form is a
partnership made up of two or more individ-
uals. The main reasons for establishing a
partnership are that more start-up capital is
needed, unique and different talents are
essential, personal friendships or family ties
come into play, and companionship is valu-
able as a lifestyle choice. While these benefits
are certainly reasonable, it is well known that
partnerships can suffer from a number of
disadvantages. Disagreements can arise
between the partners in almost any area of
business management. Conflicts over the
firm’s goals, strategy, financing, and so on are
common over time. More than half of the
partnerships run into such serious personal
problems that the firm is either dissolved or
one partner buys out the other partner. Demetris Lewis shows one of the cross-walk signals produced by his home-
based business, Quantrell Enterprise. The device warns drivers of the possible
presence of disabled pedestrians.
Corporations and Franchises

As small firms grow, it may be necessary to adopt the corporate form of business
organization. A corporation is essentially an individual entity that exists only in

EXHIBIT 4.8
Characteristics of Different Kinds of Business Organizations

A sole proprietorship
• Personal taxation of business income
• Total control of the enterprise
• Problem of managing all aspects of the business
• Problem of personal liability for bank loans
• Availability of government support for financing needs
A partnership provides greater financial and human resources.
• Problem of management disagreements
A C corporation is registered within its home state.
• Corporate taxation as an individual entity
• Ability to issue common stock to raise new equity capital
• Limited liability of managers and shareholders
• Problem of double taxation of earnings (but S corporations taxed as
partnerships)
• Problem of dilution of ownership control with many shareholders
• Problem of loss of entrepreneurial spirit
A franchise provides training and brand name recognition for the franchisee
from the larger franchisor.
• Problem of fees and royalty payments
• Problem of loss of independence

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