Chapter 8 – Sole Proprietorships

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What are the characteristics of sole proprietorships?

Ownership, liability, tax liability, risk, and considerations

What are the advantages and disadvantages of a sole proprietorship?

Advantages: Easy start-up, relatively few regulation, and get all profits Disadvantages: Unlimited personal liability, limited access to resources, and lack of performance

Compare and contrast the different types of partnerships

General partnership: All partners have responsibility and all partners have liability Limited partnership: 1 partner has responsibility and only 1 partner has liability Limited liability partnership: All partners have responsibility and all partners have liability

What are the advantages and disadvantages of partnerships?

Advantages: Ease of start-up, shared decision making, more capital, and attractive to employees Disadvantages: Unlimited liability, lack of control, potential for conflict, and lack of performance

How does a business franchise operate?

It pays fees to a parent company in return for the exclusive right to sell a certain product or service in a given area

What are the characteristics of a corporation?

Unlimited life, limited liability, separate legal entity, relative ease of transferring ownership rights, professional management, ease of capital acquisition, and government regulations

What are the advantages and disadvantages of incorporation?

Advantages: Limited liability for owners, transferable ownership, ability to attract capital, and long life Disadvantages: Difficult and expense of start-up, double taxation, loss of control, and more regulation

Compare and contrast corporate combinations

Horizontal mergers: Join two or more firms competing in the same market with the same good or service Vertical mergers: Join two or more firms involved in different stages of producing the same good or service Conglomerates: No one in the business earns the majority of the firm’s profits

What is the role of multinational corporations?

They produce and sell their goods and services in more than one country

What are the different types of cooperative organizations?

Consumer cooperatives, service cooperatives, and producer cooperatives

What is the purpose of nonprofit organization (including professional and business organizations)?

To benefit the public

Sole proprietorship

A business owned and managed by a single individual


A business owned by two or more persons associated as partners

General partnership

A partnership in which each member has an equal right to manage the business and share in the profits, as well as an equal responsibility for debts

Limited partnership

A partnership in which only certain partners have personal liability

Limited liability partnership

All partners are limited partners and not responsible for the debts and other liabilities of other partners


A business owned by stockholders who share in its profits but are not personally responsible for its debts


A business organization owned and operated by a group of individuals for their mutual benefit

Nonprofit organization

An organization whose goals do not include making a personal profit for its owners or organizers

Professional organization

A nonprofit organization that works to improve the image, working conditions, and skill levels of people in particular occupations

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