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

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

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

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

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

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

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

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

Sole Proprietorship Disadvantages 3.Limited growth potential  Sole proprietors generally use savings or borrow small amounts of money to begin their business.  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.  Must have capital to expand the business.

Sole Proprietorship Disadvantages 4.Lack of longevity  Longevity is the length of a firm’s life or the length of time the business operates.  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  Name three challenges facing a sole proprietorship.  Name two legal considerations.  Name the main advantage for being a sole proprietor.

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

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

Forms of Partnerships  General partnerships enjoy equal decision-making authority. Each has unlimited liability  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. Liability is limited for some partners

Partnership Advantages 1.Easy start up  Low costs and few government regulations  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  Specific business duties can be assigned to different partners depending on the partnership contract.  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  Partners can minimize mistakes by consulting with each other on business matters. 4.Shared business losses  Sharing business losses may enable a partnership to survive a situation that would cause a sole proprietorship to fail.  Partnerships are usually better able to secure additional financial capital.

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

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

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

Assignment  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.