A sole proprietorship is a business owned and operated by one individual where they retain all profits but are personally responsible for any debts. A partnership is between 2-20 people who jointly own and operate the business, with profits distributed based on ownership percentage but unlimited liability like a sole proprietorship. A private company limits liability and has more complex structures than a sole proprietorship or partnership.

1. Legal Forms of a business No.
7
Three forms to look at
Sole Proprietorship
Partnership
Private company

2. Sole Proprietorship
This is a business with only one
owner
The owner is free to make
independent decisions – ie prices
Owner retains the profits
No restrictions on employing staff

3. Problems with Sole Trader
Owner is responsible for the debts –
unlimited liability is the term used
Sources of capital is limited – this is
because it only comes from the
owner

4. Partnership
Between 2 and 20 people involved in
the ownership of the business
Partners can be involved but can also
be silent? - What do you think this
means???
Profits are distributed according to %
of ownership

5. Advantages
Cheap to set up – good idea to have
it set up by lawyers
Workload is reduced as more persons
involved in the business
Tax is shared by the partners

6. Disadvantages
As with sole trader a partnership has
unlimited liability
If one partner is in financial trouble
the others have to assist.
Have a look at fig 1.3 pg 31 – what
conclusions can be made here????

7. Questions pg 32 and 33
Have a go now at the doing the
exercise.
Would anyone enter into a
partnership???