Sole Proprietorship and Partnership

Sole Proprietorship and Partnership Chapter 35 Sole Proprietorships     A sole proprietorship is a form of business ownership that is owned and operated by one person. If the name is different from the owner's, it is said to have a fictitious or assumed name. Advantages: complete control of the business, easy to establish, taxed only once Disadvantages: limited capital, sole proprietor is responsible for all the debts of the business and for the negligent acts of any employee, sole proprietorship ends if owner dies General Partnerships    An association of two or more persons to carry on a business for a profit. Advantages: more capital, more credit, specialization, partners aren't solely responsible for losses Disadvantages: partners share in liabilities, share profits, death one partner dissolves the partnership Creation by Agreement   Requires the valid assent of the interested parties The articles of partnership is the partnership agreement (required if the partnership is to last more than one year). Creation by Proof of Existence   Because of the way that two or more people conduct their business together They are considered sharing profits if the money is not for repayment, consideration, interest, or wages. Creation by Estoppel  Occurs because someone does or says something that leads a third party to believe that a partnership exists Types of Partners    General partner: takes an active role Secret partner: has an active role, but is kept secret from the public Silent partner: a general partner who takes no active role   Dormant partner: takes no active role and whose connection is kept a secret Limited partner: one whose liability is limited to the amount of their investment Partnership Property     Includes property that is bought with partnership funds Tenancy in common means that all partners can use the property for partnership business. Each partner has an equal voice in management, unless limited in the agreement. Each partner shares equally in profits, unless other wise agreed. Duties of the Partners    Always act in good faith Use their best skill and judgment Be loyal to the firm (fiduciary duty) Liability of the Partners    Unlimited for all debts; can even affect personal assets Losses are shared in same proportion as profits Joint liability means that in the event of a lawsuit, all partners are sued together. Dissolution   A dissolution is a legal detachment or breaking off. When any partner dies or voluntarily withdraws, the partnership is dissolved. o Existing partners may create a new partnership with new financial arrangements. o Liabilities are paid to creditors first, then to the partners. o The partners are individually liable for any unpaid debts. Limited Partnerships    A partnership formed by two or more persons having one or more general partners and one or more limited partners. Limited partners are investors only with no control in management. The partnership name must indicated that it's limited (Ltd.)