Essential Business Structures: Proprietorships and Partnerships

Fundamentals of Entrepreneurship and Business Structures

Defining Entrepreneurship

Entrepreneurship is the process of initiating a business venture, organizing the necessary resources, and assuming the associated risks and rewards.

Social Entrepreneurship: Creating Value

Social entrepreneurship focuses primarily on creating social value by providing solutions to social problems, with a secondary purpose of generating profit and returns.

Key Unincorporated Business Structures

Sole Proprietorship

A sole proprietorship is defined as an unincorporated business owned by an individual for profit. Proprietorships make up the majority of businesses in the United States. This form is popular because it is easy to start and has few legal requirements.

Advantages and Disadvantages of a Sole Proprietorship

• Total Control: A proprietor has total ownership and control of the company and can make all decisions without consulting anyone.
• Unlimited Liability Risk: The owner has unlimited liability for the business, meaning that if someone sues, the owner’s personal as well as business assets are at risk.
• Financing Challenges: Financing can be harder to obtain because business success rests entirely on one person’s shoulders.

Partnership

A partnership is an unincorporated business owned by two or more people. Partnerships, like proprietorships, are relatively easy to start.

Establishing a Partnership Agreement

For example, two friends may reach an agreement to start a graphic arts company. To avoid misunderstandings and to ensure the business is well planned, it is wise to draw up and sign a formal partnership agreement with the help of an attorney. The agreement specifies how partners are to share responsibility and resources and how they will contribute their expertise.

Challenges and Benefits of Partnerships

The disadvantages of partnerships are the unlimited liability of the partners and the disagreements that almost always occur among strong-minded people. A poll by Inc. magazine illustrated the volatility of partnerships:

• According to the poll, 59 percent of respondents considered partnerships a bad business move, citing reasons such as partner problems and conflicts.
• Partnerships often dissolve within five years.

Respondents who liked partnerships pointed to the equality of partners (sharing of workload and emotional and financial burdens) as the key to a successful partnership.