Sole Proprietorship and Partnership Section 8 1 Sole

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 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

Review 1. 2. 3. 4. 5. 6. 7. What is an entrepreneur? What are the advantages of a sole proprietorship? What are the disadvantages of a sole proprietorship? What is on the partnership agreement? What’s the difference between a general partner and a limited partner? What are the advantages of a partnership? What are the disadvantages of a partnership?