Sole Proprietorship and Partnership

Section 8-1

Sole Proprietorship A sole proprietorship is a

business owned by one person.

Oldest and most common form of business ownership.

About 75% of all business in the United States are sole proprietorships.

A person who starts a business is known as an entrepreneur.

Advantages of Sole Proprietorship You can make all the decisions! Easy set-up (minimal paperwork)

Licensing (obtain from state or local government)

Business name (need to get a certificate)

Employees (need to get Employer Identification #, EIN)

Total Control Profits to Owner Profits Taxed Once Few Government Regulations

Disadvantages of Sole Proprietorship Limited capital (any $$ needed comes from your

pocket)

Unlimited liability (owner is responsible to pay the business debts out of personal assets)

Limited human resources (don’t have other managers to ask opinions from)

Limited life (business’s life span or existence is determined by the owner’s life span or decision)

The Partnership

A partnership is a business owned by 2 or more persons.

About 5 % of all businesses in the US are partnerships.

Partnership Agreement The partnership agreement is a written

document that states how the business will be organized.

It includes: Names of partners Name and nature of the business Amount of investment by each partner Duties, rights, and responsibilities of each partner Procedures for sharing profits and losses How assets will be divided when and if the

partnership is dissolved

General Partners and Limited Partners

General Partners Limited Partners

A business partner who has decision-making authority, takes an active role in the operation, and has unlimited liability for all losses or debts of the partnership

All partnerships have at least one general partner

A business partner who does not take an active role in decision making or running the business

Usually a partner who will provide $$ for the partnership to run, but does not want to participate in actually running the business

Advantages of the Partnership Easy set-up More skills and knowledge (more people to pull

ideas from)

Available capital (more sources for $$ to get business running)

Total control by partners Profits taxed once

Disadvantages of the Partnership Unlimited liability Possible disagreement among partners (you are

responsible for actions of your partner)

Shared profits Limited life

Review1. What is an entrepreneur?2. What are the advantages of a sole

proprietorship? 3. What are the disadvantages of a sole

proprietorship?4. What is on the partnership agreement?5. What’s the difference between a general

partner and a limited partner?6.  What are the advantages of a partnership?7.  What are the disadvantages of a

partnership?