Topic 1.7 · Organization, Roles, and Responsibilities
Organization, Roles, and Responsibilities
Sole proprietorships, partnerships, LLCs and corporations. How large businesses organize leadership and departments, and when they outsource.
Learning objectives
- 1.7.ADescribe the major types of business organization and their relative advantages and disadvantages.
- 1.7.BDefine the roles and responsibilities of sole proprietors and partners.
- 1.7.CExplain how and why large businesses organize responsibilities into a structure that includes leadership and management of specialized departments as well as outsourcing.
- 1.7.DDescribe the roles, responsibilities, and purposes of specialized departments in a business.
Objective statements © College Board, quoted from the Course and Exam Description.
The four major types of business organization
| Type | Control | Personal liability for debts? | Access to funding |
|---|---|---|---|
| Sole proprietorship | One owner keeps full control and profits | Yes | Limited |
| Partnership | Partners share control and profits | Yes | Limited |
| LLC | Owners keep control and profits | No: owners are protected | Limited |
| Corporation | Owners cede control to shareholders and a board of directors | No: the company is liable | Greatest: easier to raise money and grow |
The key trade-off is control vs. growth. Sole proprietors, partners and LLC owners keep decision-making control, but they may struggle to raise enough money to grow. Corporations can raise more funding by selling shares, but the original owners give up control.
In sole proprietorships and partnerships, owners play many roles themselves. Partners usually divide responsibilities by each partner's strengths and interests.
How larger businesses organize
Key terms
- Sole proprietorship
- A business owned by one person who keeps control and profits but is personally liable for all business debts.
- Partnership
- A business owned by two or more partners who share control, profits and personal liability, often dividing roles by strengths.
- Limited liability company (LLC)
- A business structure that lets owners keep control while protecting them from personal liability for business debts.
- Corporation
- A business owned by shareholders and overseen by an elected board of directors. It has greater access to funding, and the company itself is liable for its debts.
- Personal liability
- Legal responsibility of an owner to pay business debts from personal assets.
- Board of directors
- A group elected by shareholders to oversee a corporation's leadership.
- Outsourcing
- Hiring another business to perform a function, often to increase efficiency or reduce costs.
- Specialized department
- A team responsible for one functional area (e.g., marketing, operations, finance) that builds expertise in that area.
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