Sole Proprietorship LEQ What are the advantages and

Sole Proprietorship LEQ: What are the advantages and disadvantages of a sole proprietorship?

Sole Proprietorships o A sole proprietorship is a business owned and controlled by one person. o This is the oldest, simplest, and most common type of business organization. o What do you think would be an advantage of owning a business by yourself? Disadvantage?

Sole Proprietorships o Financial resources available to one person are often limited – so sole proprietorships tend to be businesses that only require a small amount of capital. o Examples include lawyers, plumbers, carpenters, hairstylists, florists, and farmers.

Sole Proprietorship Advantages 1. Easy start up n The business requires small amounts of capital and involve few legal considerations. n Sole proprietors must observe zoning laws which specify the areas of a city or county where various types of business activities can be pursued. n A city and state business license may be required.

Sole Proprietorship Advantages 2. Control o Sole proprietors can act quickly to correct problems or take advantage of opportunities. o Control tends to lead to personal satisfaction – a successful business is more rewarding.

Sole Proprietorship Advantages 3. Profit o The owner keeps all of the profits. o Often the main reason for starting the business.

Sole Proprietorship Disadvantages 1. Unlimited liability o Sole proprietors are personally responsible for all business debt – AKA liability.

Sole Proprietorship Disadvantages 2. Sole responsibility o The owner is responsible for all aspects of running the business. o Demands on your time and energy may create frustration and reduce your sense of satisfaction and accomplishment.

Sole Proprietorship Disadvantages 3. Limited growth potential o Sole proprietors generally use savings or borrow small amounts of money to begin their business. o Banks may require collateral – anything of value that a borrower agrees to give up if he or she is not able to repay a loan. o Must have capital to expand the business.

Sole Proprietorship Disadvantages 4. Lack of longevity o Longevity is the length of a firm’s life or the length of time the business operates. o Sole proprietorships depend on the health, commitment, and competence of one person – so they generally have a shorter life span than other forms of business organization.

Quick Review o Name three challenges facing a sole proprietorship. o Name two legal considerations. o Name the main advantage for being a sole proprietor.

Partnerships LEQ: What are the advantages and disadvantages of a partnership?

Partnerships o A partnership is a business owned and controlled by two or more people. o What do you think is an advantage to having a partnership? Disadvantage? o Examples include doctors, lawyers, accountants, and construction companies.

Forms of Partnerships o General partnerships enjoy equal decision-making authority. n Each has unlimited liability o In a limited partnership partners join as investors who provide financial capital in exchange for a share of the profits, but rarely take an active role in business decisions. n Liability is limited for some partners

Partnership Advantages 1. Easy start up o Low costs and few government regulations o Partnership contract are usually created that details each partner’s responsibilities and includes conditions for adding/dropping partners, and dissolving the partnership.

Partnership Advantages 2. Specialization o Specific business duties can be assigned to different partners depending on the partnership contract. o Partners are better able to specialize in those areas of the business in which their skills and talents can be used.

Partnership Advantages 3. Shared decision making o Partners can minimize mistakes by consulting with each other on business matters. 4. Shared business losses o Sharing business losses may enable a partnership to survive a situation that would cause a sole proprietorship to fail. o Partnerships are usually better able to secure additional financial capital.

Partnership Disadvantages 1. Unlimited liability o As with sole proprietors, partners are responsible for the debts of the business. o They can lose more than they invest!

Partnership Disadvantages 2. Potential for conflict o Disagreements and other conflicts may arise among partners. o Conflict can lower employee morale, delay important business decisions, and decrease overall efficiency.

Partnership Disadvantages 3. Lack of longevity o The life of the partnership depends on the willingness and ability of the partners to continue working together. o Illness, death, conflict among partners, and other problems can end the partnership.

Assignment o Imagine that you are opening a business with one partner – create an outline that details some of the items you would include in your partnership agreement.