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

2. © 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

3. 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

4. © 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. © 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

11. 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

12. © 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

13. © 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

14. 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

15. © 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

16. © 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

17. © 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