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

2. 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

3. 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

4. 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

5. 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

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

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

8. 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