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Sole Proprietorship and Partnership

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.

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Sole Proprietorship and Partnership

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  1. Sole Proprietorship and Partnership Section 8-1

  2. 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.

  3. 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

  4. 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)

  5. The Partnership • A partnership is a business owned by 2 or more persons. • About 5 % of all businesses in the US are partnerships.

  6. 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

  7. 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

  8. 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

  9. Disadvantages of the Partnership • Unlimited liability • Possible disagreement among partners (you are responsible for actions of your partner) • Shared profits • Limited life

  10. Review • 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?

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