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Sole Proprietorships

Sole Proprietorships. Sole proprietorships are the smallest form of business, and they are owned and operated by one person. Sole proprietorships are easy to start because they have almost no requirements except for occasional business licenses and fees.

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Sole Proprietorships

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  1. Sole Proprietorships • Sole proprietorships are the smallest form of business, and they are owned and operated by one person. • Sole proprietorships are easy to start because they have almost no requirements except for occasional business licenses and fees. • Advantages include: easy to start, relatively simple to manage, keep all the profits, no separate business income taxes, satisfaction of owning a business, and easy to end. • Disadvantages include: unlimited liability, difficult to raise financial capital, inefficiency if enough personnel are not hired or enough inventory stocked, possibly limited managerial experience, difficulty attracting qualified employees, and limited life.

  2. Partnerships • Partnerships are owned by two or more people. • Partnerships may be general or limited. • Partnerships are easy to start; start-up usually consists of drawing up papers to specify the arrangement between the partners. • Advantages of partnerships include: easy to start, easy to manage, lack of special taxes, financial capital attracted more easily than proprietorships, and operations are more efficient due to slightly larger size. • Disadvantages of general partnerships include: each partner is fully responsible for the acts of all other partners, limited partners may lose their initial investment if the business fails, limited life, and the potential for conflict between partners.

  3. Corporations • Corporations are recognized as separate legal entities with all the rights of an individual. • Corporations file for permission to form from the national or state government, which grants a charter specifying the number of shares of stock that may be sold. • Stock may be common or preferred. • Advantages of corporations include: ease of raising financial capital, limited liability for owners, directors can hire professional managers to run the company, unlimited life, and ease of transfer of ownership. • Disadvantages of corporations include: double taxation, difficulty and expense of getting a charter, shareholders (owners) have little say in how the business is run, and more government regulation.

  4. Franchises • In a franchise, the franchisee rents or leases the name, business profile, and way of doing business from the owner, or franchisor. • Advantages to the franchisee include national advertising, instant access to a successful product line, and professional advice when needed. • Advantages to the franchisor include the ability to expand the business without excess financial risk or liabilities, the income brought in by the initial franchise payment and monthly royalty fees, and a franchisee who is highly motivated to make the franchise work.

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