Business Organizations: Sole Proprietorships and Partnerships

Flashcards about sole proprietorships and partnerships.

Sole Proprietorship

A business owned by one person known as the proprietor.

Proprietor

The owner of a sole proprietorship.

Advantage of Sole Proprietorship

The owner receives all of the profits and has full control of the business.

Autonomous

Having the freedom to do what you want; a characteristic of sole proprietorships.

Disadvantage of Sole Proprietorship

The owner has unlimited liability.

Unlimited Liability

The owner bears complete legal responsibility for all debts and damages arising from doing business; personal assets may be seized.

Partnership

A business owned and operated by two or more people.

Partnership Stock

Partnerships do not have shareholders and do not sell stock.

Types of Partnerships

General partnership, limited partnership, limited liability partnership, and joint ventures.

Partnership Agreement

A legally binding agreement that describes the duties of each partner, the division of profits, and the distribution of assets at the end of partnership.

Advantage of General Partnership

The partners share control and profits, leading to greater efficiency.

Disadvantage of General Partnership

Partnerships still have unlimited liability.

Unlimited Liability in Partnerships

Every partner is responsible for the debt and wrongdoings of every other partner while transacting business of the partnership. Personal assets are at risk.

Disadvantages of General Partnership

Possibility of personal conflict and the need to reorganize if a partner quits or dies.

Limited Partnership (LP)

A business where the partners are not equal; some partners have limited liability and bear no long-term risk.

General Partners in LP

Fully responsible for the debts of the company.

Limited Partners in LP

Contribute money or property but do not have any voice in the company's management; have no liability beyond their initial investment.

Liability of Limited Partners

Limited to their initial investment, even if the company owes millions in debt or lawsuits.