Chapter 8 Section 2 Sole Proprietorship and

Partnerships• Sole Proprietorship- a firms is owned and

managed by a single individual.• Earns all the firms’ profits & responsible

for losses.• Some have many employees, but many do

not.• A self-employed person is not considered to

be a paid employee.

Who is Sole Proprietor?

• Most community business are owned by sole proprietors.

• Ex. Hair stylist, truckers, lawyers, doctors, & dentist.

• Consist of just one self-employed person

• Work at the business all the time through out the year, only part time, part of the year.

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• 5% are US business sales

Advantages of Sole Proprietorships

• Most common type of business• 1. Easy to Start-minimum red tape & legal expense.

Need a business license & permit to collect state & local sales taxes.

• 2. Few Government Regulations- maintaining accurate tax records and complying w/ employment laws. No employees.

• 3. Complete Control- boss, w/ complete authority over all business decisions, such as what to produce, what resources to hire, & how to combine these resource.

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• 4. Owner Keeps All Profit- does not have to share profits.

• 5. Lower taxes- Income is taxed only once as the owner’s personal income. (corporate income is taxed twice.)

• 6. Pride of Ownership-Creating a successful business & watching it grow can provide a sole proprietor tremendous satisfaction.

Disadvantages of Sole Proprietorship

• 1. Unlimited Personal Liability- a sole proprietor faces unlimited personal liability for any loss.

• Liability-is the legal obligation to pay any debts of the business.

• Owner is responsible to pay. (personal savings or sell personal assets, such as a home or automobile.

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• 2. Difficulty Raising Financial Capital-has no partners or other financial backers, raising enough money to get the business going.

• 3. Limited Life- business ends when the owner dies or leaves the business. Sold & becomes new ownership.

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• 4. Difficulty Finding and Keeping Good Workers- lack of permanence and difficulty raising financial capital, trouble offering workers job security.

• 5. Unlimited Responsibility- great deal responsibility.

Partnership

• Partnership-which involves two or more individuals who agree to contribute resources to the business in return for a share of the profit.

• One is talented and the other supplies the money.

Homework

• Read and do Chapter 8 section 3 page 247 #1-7