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Sole Proprietorship and Partnership
Section 8-1
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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.
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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
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Disadvantages of Sole Proprietorship
Limited capital (any $$ needed comes from your pocket) Unlimited liability (owner is responsible to pay the business debts out of personal assets) Limited human resources (don’t have other managers to ask opinions from) Limited life (business’s life span or existence is determined by the owner’s life span or decision)
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The Partnership A partnership is a business owned by 2 or more persons. About 5 % of all businesses in the US are partnerships.
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Partnership Agreement
The partnership agreement is a written document that states how the business will be organized. It includes: Names of partners Name and nature of the business Amount of investment by each partner Duties, rights, and responsibilities of each partner Procedures for sharing profits and losses How assets will be divided when and if the partnership is dissolved
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General Partners and Limited Partners
A business partner who has decision-making authority, takes an active role in the operation, and has unlimited liability for all losses or debts of the partnership All partnerships have at least one general partner A business partner who does not take an active role in decision making or running the business Usually a partner who will provide $$ for the partnership to run, but does not want to participate in actually running the business
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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
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Disadvantages of the Partnership
Unlimited liability Possible disagreement among partners (you are responsible for actions of your partner) Shared profits Limited life
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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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