Entrepreneurship, Sole Proprietorships, and General Partnerships © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Entrepreneur A person who forms and operates a new business either by him- or herself or with others. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Entrepreneurial Forms of Conducting Business Sole Proprietorship General Partnership Limited Partnership Limited Liability Partnership Limited Liability Company © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Sole Proprietorship Owner is actually the business. Business is not a separate legal entity. Most common form of business organization in the United States. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Advantages of a Sole Proprietorship Ease and low cost of formation. Owner can make all management decisions. hiring and firing employees. No other approvals required. Sole proprietor owns all of the business Has the right to receive all of the business’s profits. Easily transferred or sold © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Disadvantages of a Sole Proprietorship Access to capital is limited to: personal funds plus any loans he or she can obtain. Legally responsible for the business’s contracts Responsible for any torts committed in the course of employment. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Creation of a Sole Proprietorship No formalities. No federal or state government approval is required. Some local governments require a license to do business within the city. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Personal Liability of a Sole Proprietor The sole proprietor bears the risk of loss of the business. Will lose his or her entire capital contribution if the business fails. The sole proprietor has unlimited personal liability. Creditors may recover claims against the business from the sole proprietor’s personal assets. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Personal Liability of a Sole Proprietor (continued) Debt or obligation owed Sole Proprietorship Third Party Capital investment Sole Proprietor (Owner) Personal liability for sole proprietorship’s debts and obligations © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman General Partnership Voluntary association Two or more people Carry on business for profit Creates rights and duties between partners and with third parties General partners personally liable for the debts and obligations of the partnership. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

General Partnership General Partnership Third Party General Partner Debt or obligation owed General Partnership Third Party Personal liability for partnership’s debts and obligations Capital investment Capital investment General Partner General Partner General Partner © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Duties Among Partners Duty of Loyalty Duty of Obedience Duty to Inform Duty of Care © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Duty of Loyalty Duty that a partner owes not to act adversely to the interests of the partnership. Duty is imposed by law Cannot be waived. In case of conflict between partnership interests and personal interests, partner must choose the interest of the partnership. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

Partners breach their duty of loyalty if they: Self-deal with the partner-ship without permission Usurp a partnership opportunity Compete with the partner-ship without permission Make secret profits from partnership business Disclose confidential partnership information Misuse partnership property Make other breaches of their fiduciary duty © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Duty of Care Partners must use the same level of care and skill that a reasonable person in the same position would use in the same circumstances. A breach of the duty of care is negligence. A partner is liable to the partnership for any damages caused by his or her negligence. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Duty to Inform Duty partner owes to inform his or her co-partners of all information he or she possesses, that is relevant to the affairs of the partnership. Knowledge is imputed to other partners. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman Duty of Obedience Duty that partners must adhere to the provisions of the partnership agreement and the decisions of the partnership. Partner who breaches this duty is liable to the partnership for any damages caused by the breach. © 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman