Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.14-1 Chapter 14 Entrepreneurship and Small Business

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. 14-1

Chapter 14

Entrepreneurship and Small Business


Entrepreneurship Entrepreneur –

person who forms and operates a new business


Entrepreneurial Forms of Conducting Business

Sole proprietorship General partnership Limited partnership Limited liability partnership (LLP)


Advantages of Sole Proprietorship

Formation is easy. Owner has the right to make all management

decisions concerning the business. Sole proprietor owns all of the business and

has the right to receive all of the business’s profits.

Sole proprietorship can be easily transferred and sold at the owner’s discretion.


Disadvantages of Sole Proprietorship

Sole proprietor’s access to capital is limited.

Sole proprietor has unlimited personal liability. Creditor may recover claims against

the business from the sole proprietor’s personal assets.


General Partnership

Criteria for a general partnership: A voluntary association of two or more

persons Carrying on a business As co-owners For profit

Receipt of profits is prima facie evidence of a partnership.


Uniform Partnership Act (UPA)

Uniform act has been adopted as state law by 48 states.

UPA adopts the “entity” theory of partnership, which considers partnerships a separate legal entity.


Characteristics of a General Partnership Under UPA

General partnership agreement

Right to participate in management

Right to an accounting Right to share in

profits Joint and several tort

liability


Characteristics of a General Partnership Under UPA

Joint liability for contracts and debts Right of indemnification

New partners are liable for existing debts at the time of their entry only to extent of their contribution.

Duration Partnership for a term Partnership at will


Dissolution of Partnership It is a wrongful dissolution of a

partnership for a term if a partner leaves before the term of the partnership expires.

Notice of dissolution must be give to third parties.

Distribution of assets Continuation after dissolution creates a

new partnership.


Limited Partnership A type of partnership that has two types of

partners General partners

Invest capital Manage the business Are personally liable for partnership debts

Limited partners Invest capital Do not participate in partnership management Are not personally liable for partnership debts


Revised Uniform Limited Partnership Act (RULPA)

Limited partnerships must file a certificate of limited partnership with the secretary of state.

Certificate must include, among other information: Name of limited partnership Character of the business Names of general and

limited partners Contributions by each

partner


Defective Formation Defective formation occurs when

The certificate is not properly filed. There are defects in the certificate filed. A statutory requirement for creating

limited partnership is not met. Limited partner liability

A limited partner may be liable as general partner to a third party under some circumstances.


Limited Partnership Agreement

Partners may sign a separate partnership agreement.

Agreement should establish Voting rights Allocation of profits and losses

If there is no separate partnership agreement, the certificate serves as the articles of limited partnership.


Dissolution and Distribution of Assets

Certificate of dissolution must be filed under RULPA.

After assets have been liquidated, the proceeds must be distributed. Creditors, including

partners who are also creditors

Partners


Documents

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall.14-1 Chapter 14 Entrepreneurship and Small Business