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Chapter 3

ECON 101 Chapter Notes - Chapter 3: Lemonade Stand, Limited Liability, Sole Proprietorship


Department
Economics
Course Code
ECON 101
Professor
Sahar Hassanin
Chapter
3

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Fields 1
Chapter 3: Section 1 Notes
Forms of Business Organization
Sole Proprietorship: Business owned and run by a single person who has the rights to all
profits and unlimited liability for all debts of the firm
o The most common form of business organization in the U.S.
o Advantages
1. The easiest form of business to start
Few requirements
2. Decisions do not require approval from “higher ups”
3. Keep all profits
4. Does not pay separate business income taxes business is not a separate
entity
Corporation exposition will explain this more
5. Psychological factor of being own boss
6. Easy to get out of business
o Disadvantages
1. Owner has unlimited liability (#1 disadvantages)
Ultimately responsible if the business fails
2. Difficult to raise capital/sales
3. Size and efficiency
Ex. Size of business too small to cover multiple jobs at once
4. May hire several employees to stay open
Ex. Getting money upfront is difficult
5. Cost of carrying minimum inventory
6. Often has limited managerial skills
7. Difficult to attract qualified employees
Ex. Qualified Chef will not work at a hamburger shop
8. Larger employees can offer more fringe benefits
Ex. Health & dental
9. Limited life of business
o Example: Lemonade stand; Cranberry Lane (downtown shops)
Partnership: unincorporated business owned and operated by two or more people who
share the profits and responsibility for debts
o Has many of the same advantages and disadvantages of a sole proprietor
o The least numerous/common form of business organization in the U.S.
o Types of partnerships
1. General (all in this together)
2. Limited (silent partnership)
o Advantages
1. Ease of startup
2. Formal legal papers called *articles of partnership* are usually written
Ex. Marriage
3. Ease of management bc/ varied expertise
4. Lack of special taxes
find more resources at oneclass.com
find more resources at oneclass.com
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