Business Organizations and Economic Institutions Chapter 3

Sole Proprietorships Business owned and run by one person Most common type of business Smallest in size Forming a Sole Proprietorship Few regulations for starting

Sole Proprietorships Economic Strengths Started with ease Managed with ease Only one “boss” Owner gets 100% of the profits Do not pay business income taxes Personal freedom Ease of getting out of business

Sole Proprietorship Economic Weaknesses Owner has unlimited liability Fully responsible Difficulty raising financial capital Hard to be big enough to run efficiently Proprietor often has limited managerial experience Difficult to attract qualified employees Limited lifetime

Partnerships Business jointly owned by two or more persons Types of Partnerships General Partnership All partners are responsible to the business Limited Partnership One partner is inactive in daily running of the business Easy to start Must draw up legal papers called articles of partnership States how profits or losses will be divided

Partnerships Economic Strengths Attract financial capital easier than proprietorship Larger – runs more efficiently Easier to attract top talent Ease of establishment Ease of management Lack of special taxes

Partnerships Economic Weaknesses Partners are responsible for the acts of the other partners Limited partnership – limited partner is not held fully responsible Limited life Potential conflict between partners