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.
A person who starts a business is
known as an entrepreneur.
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
Disadvantages of Sole Proprietorship


Limited capital (any $$ needed comes from your pocket)
Unlimited liability (owner is responsible to pay the business debts out
of personal assets)

Limited human resources (don’t have other managers to ask
opinions from)

Limited life (business’s life span or existence is determined by the
owner’s life span or decision)
The Partnership


A partnership is a business
owned by 2 or more
persons.
About 5 % of all businesses
in the US are partnerships.
Partnership Agreement


The partnership agreement is a written document that
states how the business will be organized.
It includes:






Names of partners
Name and nature of the business
Amount of investment by each partner
Duties, rights, and responsibilities of each partner
Procedures for sharing profits and losses
How assets will be divided when and if the partnership is
dissolved
General Partners and Limited Partners
General Partners


A business partner who
has decision-making
authority, takes an active
role in the operation, and
has unlimited liability for
all losses or debts of the
partnership
All partnerships have at
least one general partner
Limited Partners


A business partner who
does not take an active
role in decision making or
running the business
Usually a partner who will
provide $$ for the
partnership to run, but
does not want to
participate in actually
running the business
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
Disadvantages of the Partnership


Unlimited liability
Possible disagreement among partners (you are responsible for
actions of your partner)


Shared profits
Limited life
Review
1.
2.
3.
4.
5.
6.
7.
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?