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Chapter 4

MGMT 1000 Chapter Notes - Chapter 4: Sole Proprietorship, Legal Personality, Limited Liability


Department
Management
Course Code
MGMT 1000
Professor
Kathleen Rodenburg
Chapter
4

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Entrepreneur must consider the best forms of ownership: Whether they run small farms, large
factories, online, etc.
- Sole Proprietorship
- Partnership
- Corporation
- Co-operation
THE SOLE PROPRIETORSHIP
- Business owned and operated by one person
- Business is considered extension of yourself (not a separate legal entity)
- Advantages:
- Freedom
- Don’t need to register your business name
- Tax benefits: most businesses suffer losses in this early stage
- Since the business and the proprietor are legally the same thing,
these losses can be deducted from income the proprietor earns from
personal sources
- Disadvantages:
- Unlimited liability: personally liable for all debts
- Lack of continuity: business dissolves if owner dies
- Depends on resources of one person whose managerial and financial
limitations may constrain the business
- They find it hard to find start-up money → banks fear they won’t be able to
pay loans if things start to go bad
THE PARTNERSHIP
- Two or more individuals agree to combine financial, managerial and technical abilities
- Accountants, lawyers, engineers
- Usually the extent of a sole proprietorship
- Advantages:
- Grow because of talent and money
- Easier time borrowing money
- Partnerships can invite more partners to join by investing money
- Few legal requirements
- General Partners (most common)
- Actively involved in managing the firm and have unlimited liability
- Similar to sole proprietorship → partners are jointly liable for obligations of
the business
- Limited Partners:
- Don’t actively participate, liability is limited to the amount they invested in
the partnership
- Agreement: They must agree on:
- Who invested what sums of money in the partnerships
- Whol will receive what share of the partnership’s profits
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