1.

Sole proprietorships one individual

in business for himself.
They make up 72% of all businesses and
take in 5% of total profits.
They are the simplest to form because of
the small amount of capital needed to start up.
Examples are beauticians, dentists, lawyers,
dry-cleaning and lawn care and lemonade stands.

2. Advantages of a Sole Proprietorship

A. Easy to quit the business if the
owner decides to do so. There are
no co-owners to consult.

B. Owners receive the entire profit.

C. Easy to formno complicated legal documents or
complicated tax forms, small amount of capital needed.

Personal satisfaction (psychological-being your

own boss) prestige and a sense of accomplishment.
D. Total control can make decisions
quickly, can hire and fire easily, can
respond quickly to trends.

3. Disadvantages of Sole proprietorships

A. Unlimited liability (debt) - have to forfeit

their personal possessions as well as their
businesses. (auto, other business, house, savings)
B. Burden of sole responsibility must
have business sense.
C. Limited potential for growth collateral (any
thing of value to guarantee a loan [like giving up
your personal possessions) [Lets say you put
your home up for collateral but have to give it up]
I want medical benefits!

D. Difficult to attract qualified employeescant

offer fringe benefits. [Lets say you ask for more benefits]
E. Short life span depends on owners health
and competence. If the owner dies,
dies it is over.

4 Partnership - business
operated by 2 or more people.

They are the least common with only

8% and take in only 11% of profits.
Two Forms of Partnerships

5 1. General equal decision making & unlimited liability

among partners.

6 2. Limited some non-active

partners join as an
investment (and thus have limited liability-just the
investment, not the property). He is a silent partner.

Lets say your silent partner puts up $30,000 to insure the loan.
I gave $30,000 as a silent partner,
so I dont have to do anything.

Advantages of Partnerships
[Two heads are better than one.]

Two Heads

better than

One Head

7 Specialization specific duties assigned to

different partners.
A. Sharing of losses. Can borrow more and can sustain
heavier losses.
B. Easy to form. Small amount of money to start & operate.
C. Shared decision making more informed decisions.
D. Personal satisfaction sense of accomplishment.

8.

Disadvantages of Partnerships

A. Disagreements among partners

conflicts delay decisions, lower employee
morale, & lessen efficiency. Each partner
is responsible for the acts of all other
partners. Must choose good partners.

B. Have to share the profits.

C. Unlimited liability can lose their
business and personal possessions.

D. Limited life sickness, conflicts,

or death can end the partnership.

Take That!

Demonstration of Unlimited Liability

Harold Nodoe,
Nodoe Gloria Poor and Jack Rich owned the
Trio Dress Shoppe as a partnership. Under the terms of
Their partnership agreement, Nodoe and Poor were
entitled each to 40% of the profits,
profits while the remaining
20% went to Rich.
Rich Last month the firm collapsed.
collapsed After
selling off everything it owned, the company still owed
its creditors $10,000.
$10,000 Since Nodoe and Poor had no
assets of their own, the creditors recovered the total
amount owed to them from Jack Richs personal bank
account.
account