This document discusses different types of business ownership structures and their associated liabilities. It notes that a sole proprietorship is a single individual who owns and operates the business and has unlimited liability for its debts. Most small businesses are sole proprietorships. While they are simple and inexpensive to start, sole proprietors have unlimited liability and it is difficult to attract investors or expand. Partnerships involve at least two individuals who share management, profits, and liability of the business. General partnerships make all partners liable, while limited partnerships limit liability for some partners. Partnerships allow founders to pool resources but profits and responsibilities must be agreed upon.

1.  All businesses have liability, but the type of
ownership selected to run that business will
determine how much liability to the owner of
the business.

2.  Sole Proprietorship – a legally defined type of
business ownership in which a single
individual:
 Owns the business
 Collects all profits from the business
 Has unlimited liability for its debt
 Most small businesses operate as a sole
proprietorship and the majority of all
businesses in the United States are sole
proprietorships.

3.  There are various advantages of sole
proprietorships:
 Simplest and least expensive to start
 Business income and expenses are reported on
the owner’s personal income tax statement
 Sole decision maker of the business

4.  There are also many disadvantages of sole
proprietorships:
 Has unlimited liability for the business
 Difficult to borrow money or attract investors
 Difficult to expand the business with limited
capital

5.  Most communities require a business license,
at least in order for you to set up a sole
proprietorship.
 Naming the Business
 A person may use their own name to describe the
sole proprietorship
 Any name other than the owner’s name is referred
to as a trade name or DBA (Doing Business As)

6.  Tax ID Number
 The federal government and some states require
a business to have a Tax ID Number for tax
purposes.
 Business owners can use their Social Security
Number if there is no other employees
 If employees are hired, an entrepreneur must
obtain a Employer Identification Number (EIN)

7.  Partnership
 A legally defined type of business organization in
which at least two individuals share:
▪ Management
▪ Profit
▪ liability

8.  General Partnerships
 All partners have unlimited liability and are
responsible for business debt
 All partners assume personal financial risk
 Limited Partnerships
 Structured so that at least one partner (general
partner) has limited liability for the business debts
 Other partners have no say in company’s day to
day operations

9.  Advantages of Partnerships
 Generally the same as setting up a sole
proprietorship in terms of taxes and paperwork
 The general partner can rely on the
entrepreneurial skills and financial backing of at
least two individuals instead of just one
 Can generate more funds from investors
 Offer an incentive to employees that they can
possibly be one day partners of the business

10.  Disadvantages of Partnerships
 Profit is split between the partners
 Each partner is responsible for the business
related actions of all the others
 Partners could have trouble agreeing on direction
of the business

11.  Partnership Agreement
 A legal document that clearly defines how the
work, responsibilities, rewards, and liabilities of a
partnership will be shared by the partners
 It also specifies:
▪ What happens if a business owner dies
▪ How the business could dissolve
▪ How the profits and responsibilities will be split up