Business

C

Service Enterprises

Service enterprises include many kinds of businesses. Examples include dry cleaners, shoe repair stores, barbershops, restaurants, ski resorts, hospitals, and hotels. In many cases service enterprises are moderately small because they do not have mechanized services and limit service to only as many individuals as they can accommodate at one time. For example, a waiter may be able to provide good service to four tables at once, but with five or more tables, customer service will suffer.

In recent years the number of service enterprises in wealthier free-market economies has grown rapidly, and spending on services now accounts for a significant percentage of all spending. By the late 1990s, private services accounted for more than 21 percent of U.S. spending. Wealthier nations have developed postindustrial economies, where entertainment and recreation businesses have become more important than most raw material extraction such as the mining of mineral ores and some manufacturing industries in terms of creating jobs and stimulating economic growth. Many of these industries have moved to developing nations, especially with the rise of large multinational corporations. As postindustrial economies have accumulated wealth, they have come to support systems of leisure, in which people are willing to pay others to do things for them. In the United States, vast numbers of people work rigid schedules for long hours in indoor offices, stores, and factories. Many employers pay high enough wages so that employees can afford to balance their work schedules with purchased recreation. People in the United States, for example, support thriving travel, theme park, resort, and recreational sport businesses.

III

Forms of Business Ownership

There are a number of different forms of business ownership. These include (1) sole proprietorships, (2) partnerships, (3) corporations, (4) joint ventures, and (5) syndicates.

A

Sole Proprietorship

The most common form of ownership is a sole proprietorship—that is, a business owned by one individual. At the beginning of the 21st century, there were more than 17 million sole proprietorships in the United States. These businesses have the advantage of being easy to set up and to dissolve because few laws exist to regulate them. Proprietors, as owners, also maintain direct control of their businesses and own all their profits. On the other hand, owners of proprietorships are personally responsible for all business debts and, because they are constrained by the limits of their personal financial resources, they may find it difficult to expand or increase their profits. For those reasons, sole proprietorships tend to be small, primarily service and retail businesses.

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B

Partnership

A partnership is an association of two or more people who operate a business as co-owners. There are different types of partners. A general partner is active in the operation of a business and is liable for all of its debts. In small businesses with only two or three owners, all typically will be general partners. A limited partner, by contrast, invests in a business but is not involved in its daily operations. Partnerships, like sole proprietorships, are relatively easy to establish. Furthermore, partners can pool financial resources to fund expansion and can divide their duties and responsibilities according to personal expertise and abilities. For example, one partner may be very good at selling, while another has a knack for maintaining good financial records. As with sole proprietorships, however, partnerships may entail substantial financial risks, as all of the general partners are liable for the debts of the business. And unlike proprietorships, disagreements among partners can harm partnership businesses.

C

Corporation

A corporation is a legal entity that exists as distinct from the individuals who control and invest in it. As a result, a corporation can continue indefinitely through complete changes of ownership, leadership, and staffing. Current owners can sell their holdings to other individuals or, if they die, have their assets transferred to heirs. This is possible because a corporation creates shares of stock that are sold to investors. One strength of the corporate business structure is that stockholders have limited liability, as opposed to the unlimited liability of general partners, so they cannot lose more than their initial investment. Investors may also easily buy and sell stocks of public corporations through stock exchanges. By offering stock publicly, a corporation enables anyone with some money to buy the stock and become a part-owner of the company. As a result, corporations can more easily raise capital for business expansion than can sole proprietorships and most partnerships.

Investors control a corporation through the election of a managing body, known as a board of directors. In a large corporation, investors collectively decide who will oversee the operation of the enterprise. In turn, the board chooses a president, who decides on the key company personnel and helps formulate company strategy.

Many corporations are highly successful business organizations, with profits far exceeding those of many sole proprietorships and partnerships. However, they traditionally have higher tax burdens than other kinds of businesses. Also, the fees involved in creating and organizing a corporation can be expensive.

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