CHAPTERS 34 AND 35
Entrepreneurships, Small Businesses and Partnerships
Entrepreneurships: Umbrella for all of these types of businesses. An entrepreneur is a person who forms &
operates a business. They may start a business by him/ herself or cofound a business with others.
Sole Proprietorship: vast majority of businesses in the United States are this; it is the simplest form of
business organization. Nothing has to be set up and there is no separate legal entity. People who are out
there doing business. The owner is the sole proprietor. – He is the owner & he is the business. Must have a
- It’s risky; but there are benefits:
1. It’s easy and does not cost a lot.
2. Owner decides everything. They are in charge of all the management positions
including hiring/firing employees.
3. Owns all of the business and has the right to receive all of the business’s profit.
4. Can be easily transferred & sold, if and when owner desires to do so.
Ex: bob the plumber just goes out and does plumbing.
- Disadvantages include:
1. Legally responsible for business contracts & torts he/she & any of his employees
enter in the course of employment.
2. A sole proprietor’s access to the business capital is limited to personal funds plus any
loan he/she can obtain.
Creation of Sole Proprietorship: it’s easy; basically you just start doing business. There are no formalities
& no federal or state government approval required. Some local governments require every business,
including sole proprietorships, to obtain a license to do so.
D.B.A.’s: “doing business as” – a sole proprietorship can operate under the name of the sole proprietor or a
trade name. Operating under a trade name is often designated as d.b.a. Most states require every business
that operates under a trade name to file a fictitious business name statement with the appropriate
Personal Liability of Sole Proprietors:
A sole proprietor bears the risk of loss of business; owner will lose his or her entire capital contribution if
the business fails. They also have unlimited personal liability – therefore, creditors recover claims against
the business from the sole proprietor’s personal assets (home, automobile, bank accounts).
Taxation: since a sole proprietorship is not a separate legal entity it does not pay taxes at a business level.
Instead, the earnings & losses from a sole proprietorship are reported on the sole proprietor’s personal
income tax return. They must file a tax return & pay taxes to state & federal governments.
General Partnerships: two or more people who want to conduct business together as partners. They are co-owners
of business for profit.
Uniform Partnership Act - (not on test) most states have adopted uniform partnership laws.
1. An association of 2 or more people.
2. Carrying on business
3. As co-owners
4. For profit.
Co-Ownership is Essential: in determining whether 2 people entering in business are co- owners.
Share profits: Are they sharing profit?
Share responsibility: Are they sharing management responsibility?
Name of Partnership? – You don’t have to sit down/register anywhere, you just need 2 people out there
conducting business together. Both must have equal say & equal profit. Name can be bob & Sidney, must file a dba to operate with a fictitious name.
Partnership Agreement: may be oral, written or implied from the conduct of the parties. No formalities
are necessary, although a few states require general partnerships to file certificates of partnership with an
appropriate gov agency.
Taxation of P’Ship: they do not pay federal income taxes. Instead, the income & losses of a partnership
flow onto & have to be reported on the individual partner’s personal income tax returns. This is called
Right to Participate in Management: unless otherwise agreed, each partner’s right to participate in the
management of a partnership & right to an equal vote on partnership matters.
Profits: unless otherwise agreed, the UPA mandates that a partner has the right to an equal share in the
partnership’s profits & losses. The right to share profits of the partnership is considered to be the right share
in earnings from the investment capital.
No Right to Compensation: In the absence of any agreement to that effect, a partner has no right to
compensation for his services; it is generally held that his only interest is the profits which he