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Sole Propreitorship

In: Business and Management

Submitted By tjc1209
Words 451
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Two legal forms of businesses are sole proprietorship and general partnership. A sole proprietor business is owned by one individual. A sole proprietorship business is the most common form of business and has many benefits. This type of business is easy setup, does not require large amounts of capital, and allows the single owner full management of decisions concerning the business. The proprietor receives all business’s profits and can easily transfer or sell the business if desired. The liabilities and risks of sole proprietorship are relatively large. The owner is responsible for everything associated within the business, including the possibility of losing all capital contributions. The owner has limited access to capital and assumes responsibility for all contracts entered into by the business. The owner also undertakes unlimited personal liability. Creditors may recover claims against the business from the owner’s personal assets such as home, automobile, and bank accounts.

A general partnership is a voluntary association of two or more individuals for the purpose of establishing a business. The partnership requires certain rights and duties to be established either through a partnership agreement or by law. General partnerships have access to more capital than sole proprietorship so funding expansions or weathering slow down periods is improved. General partners are also personally liable for debts and obligations assumed by the business. A general partnership has three main liabilities, tort, contract, and incoming partners. The tort liability centers on a partner or employee causing an injury to a third person, either by a negligent act, a breach of trust such as embezzlement, breach of fiduciary duty, defamation, fraud, or other intentional act. The partnership is liable if the act is committed while the person is carrying out duties in ordinary course of business or with the authority of partners. The contract liability is the partnership must act through its partners. Relationships entered into with suppliers, customers, lenders, or others are binding on everyone in the partnership. The liability of incoming partners is limited on existing business debts and obligations to the extent of the original capital contribution. However, incoming partners are personally liable for debts and obligations acquired after they become a partner.

My neighbor owns a metal-working business in which he is the sole proprietor. He has built the business from the ground up and has never advertised, sought a partner, or went bankrupt.

The preferred type of business in this case is the sole proprietorship because it allows the owner complete control of customers, suppliers, and employees. My neighbor built strong relationships with several area businesses and they use his company exclusively for their stainless steel needs. As sole owner he controls product quality, order responsiveness, and customer loyalty.

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