Unit 2 - Understand the Nature of Business Objective 2.01 – Understand the Types of Business Ownership Topic – Sole Proprietorships and Partnerships

Sole Proprietorship A business owned by ONE person That person takes ALL the risks Unlimited liability – your financial liability is not limited to your investment in the business Creditors can take your house and car to pay off business debts Small – less than 50 people, sometimes one one person Easily managed by the owner Most proprietorships are in service, retail, trade, and construction Example: Florist, Lawn Care

Sole Proprietorship Advantages Easy to form/open Recipient of 100% of the profit Pride and satisfaction of ownership Privacy Complete control and flexibility One time taxation Easy to Close Decision or life of owner

Sole Proprietorship Disadvantages Limited capital Personal, gifts, borrowed, and others may vary Unlimited liability Employment Firing of an employee that missed significant days from work Accidents and injuries on premises Customer breaks a leg while on business property Company vehicle-related Driver runs into a building while driving company’s car Product-related Toys easily injure toddlers Errors and omissions Employee accidentally damages a customer’s property Limited capabilities Limited to the lifetime of owner

Partnership A business owned by two or more persons Partners make decisions – who will contribute what Share risks Requirements for partnership vary with the state Should have an attorney to create partnership agreement Often used by professionals Example: Law Office, Doctors

Partnership Advantages Easy to start Increased capital Combined capabilities Increased goodwill Decreased competition Reduced expenses Tax advantages

Partnership Disadvantages Unlimited financial liability Limited capital Difficult to share profits Disagreements Difficult to end Uncertain life Decisions made jointly

Participation in the Business Relationship to the Public Types of Partners Type of Partner Participation in the Business Relationship to the Public Degree of Liability Dormant Not active Unknown Unlimited General Active Known Limited Secret Silent