THE PARTNERSHIP
Disadvantages of the Sole Proprietorship
Unlimited liability. The individual proprietor is responsible for the full amount of business debts which may exceed the proprietor'stotal investment. This liability extends to all the proprietor's assets, such as house and car. Additional problems of liability, such as physical loss or personal injury, may be lessened by obtaining proper insurance coverage.
Unstable business life. The enterprise may be crippled or terminated upon illness or death of the owner.
Less available capital, ordinarily, than in other types of business organizations.
Relative difficulty in obtaining long term financing.
Relatively limited viewpoint and experience. This is more often the case with one owner than with several.
NOTE: A small business owner might very well select the sole proprietorship to begin with. Later, if the owner succeds and feels the need, he or she can form a partnership or corporation.
The small business owner is required to wear many hats, but no one can be expected to be a lawyer, certified public accountant, marketing specialist, production engineer, environmental specialist, etc. Therefore, you should get the facts before making decisions. When necessary and if possible, you should also get professional counsel to help you avoid misunderstanding technical or legal issues and avoid making bad decisions and false starts that require backtracking and added expense. This is especially true when you are deciding what legal form to adopt.
The Uniform Partnership Act, adopted by many states, defines partnership as "an association of two or more persons to carry on as co-owners of a business for profit." Though not specifically required by the Act, written Articles of Partnership are customarily executed. These articles outline the contribution by the partners into the business (whether financial, material or managerial) and generally delneate the roles of the partners in the business relationship. The following are example articles typically contained in a partnership agreement:
Name, Purpose, Domicile
Duration of Agreement
Character of Partners ( general or limited, active or silent)
Contributions by Partners ( at inception, at later date)
Business Expenses ( how handled)
Authority ( individual partner authority in conduct of business)
Separate Debts
Books, Records, and Method of Accounting
Division of Profits and Losses
Draws or Salaries
Rights of Continuing Partner
Death of a Partner ( dissolution and winding up)
Employee Management
i. Release of Debts
j. Sale of Partnership Interest
k. Arbitration
l. Additions, Alterations, or. Modifications of Partnership Agreement
m. Settlements of Disputes
n. Required and Prohibited Acts
o. Absence and Disability
Some of the characteristics that distinguish a partnership from other forms of business organization are the limited life of a partnership, unlimited liability of at least one partner, co-ownership of the assets, mutual agency, share of management, and share in partnership profits.