The sole proprietors sources of money are often

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Unformatted text preview: ds for business expansion. Sole proprietors do not find borrowing funds easy, because lenders are not eager to lend funds to business firms whose success depends on one person. The sole proprietor’s sources of money are often limited to personal funds and the funds of close friends and family members. 3. Sole proprietorships usually end with the retirement or death of the proprietor; they have a limited life. When the owner of a sole proprietorship dies, the business “dies” as well. From the point of view of the business community and the firm’s employees, this factor is a disadvantage. Employees usually like to work for firms that offer some permanency and the possibility of moving upward. Partnerships A partnership is a business that is owned by two or more co-owners, called partners, who share any profits the business earns and are legally responsible for any debts incurred by the firm. You may think of a partnership as a proprietorship with more than one owner. Partnerships include such businesses as some medical offices, law offices, and advertising agencies. Approximately 2.3 million partnerships operate in the United States. Advantages of Partnerships The advantages of partnerships include the following: 1. In a partnership, the benefits of specialization can be realized. If, for example, one partner in an advertising agency is better at public relations and another is better at artwork, each can work at the tasks for which he or she is best suited. The ad agency then has a better chance of succeeding than if only one person ran it. 2. The profit of the partnership is the income of the partners, and only personal income taxes apply to it. The owners of a partnership, like the owner of a sole proprietorship, pay only personal income taxes. Corporate income taxes do not apply. Disadvantages of Partnerships Partnerships also have some disadvantages, which include the following: 1. There are two types of partners, general partners and limited partners. General partners are partners who are responsible for the management of the firm. They face unlimited liability, just as sole 162 Chapter 7 Business Operations 07 (154-185) EMC Chap 07 11/17/05 5:14 PM Page 163 proprietors do. However, unlimited liability is even more of a disadvantage in a partnership than it is in a sole proprietorship. In a sole proprietorship, the proprietor incurs his or her own debts and is solely responsible for them. In a partnership, one general partner might incur the debts, but all general partners are responsible for them. For example, suppose partner Matson incurs a debt by buying an expensive piece of medical equipment without the permission of partners Bradbury and Chan. This is too bad for partners Bradbury and Chan. They are still legally responsible for the debts incurred by Matson. Although a general partner has unlimited liability, a limited partner does not. The liability of a limited partner is restricted to the amount he or she has invested in the firm. Limited part...
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This document was uploaded on 01/16/2014.

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