Non-Corporate Business

Video Transcription

Hi, I'm Jeff. And in this lesson, we'll discuss non-corporate businesses, such as sole proprietorships and partnerships. So let's get started.

First, we'll cover sole proprietorships. This is a business, which is owned and operated by one person. Many companies start as sole proprietorships. In fact, more than 21 million have been started in the United States alone. Both Ford motors and Walmart were started by only one person. And both of those have grown to have billions of dollars in revenue.

Some of the advantages of sole proprietorships are they're easy to start. And if necessary close, you retain all the profit. You're the single boss. The taxes are simple. You can maintain a personal relationship with customers .

And since you're involved directly in the work, you can have pride in a job well done. But there are disadvantages too. You, of course, are responsible for any losses. Funding the business can be a challenge, especially if the business hasn't existed for long.

There is unlimited liability. Liability is a legal obligation or responsibility. So you have limited protection during court cases. Management of all the different areas in a business can be challenging, depending on your skills or experience. There can be issues with continuity if something happens to you.

And attracting and keeping employees can be a challenge, because it's up to you to be the face of the business. That's why some owners choose to start a business as a partnership instead. So there can be shared responsibility. A partnership is a business, which is owned and operated by two or more people.

There are a number of legal methods to form a partnership, such as general partners where all owners are personally responsible and liable, limited partners where some owners have limited responsibilities, and master limited partnership which is similar to a limited partnership except the business is publicly traded on a securities exchange. Some of the advantages of a partnership are it's easy to set up, funding is easier since there are multiple people with credit, more skills and experience since there are more people, few people still share in the profits, and taxes are easy. The disadvantages are there is still unlimited liability spread across the partners, management disagreements can be difficult to resolve if both partners have the same voting rights, issues with continuity if something happens to one or more partners, and the risk for frozen investments if something occurs with the credit of one partner.

In all cases, there will be a partnership agreement to outline the responsibilities and liabilities of each partner. It will also outline how the business will be organized and managed. It should include who makes the final decisions, the responsibilities of each partner, the amount invested by each partner and the ownership for that investment, the profit and loss breakout for each partner, and what happens if a disagreement occurs.

Some partnership agreements will designate an outside person to arbitrate disagreements between partners so major conflicts can be resolved quickly without damage to the partners relations. Whether you choose to start a company as a sole proprietorship or a partnership or something more complex depends on your specific circumstances. Henry Ford, the founder of Ford Motors, first began a sole proprietorship which failed. He had difficulty obtaining funding for his next business, one of the disadvantages that we discussed about sole proprietorships. So he started a partnership in order to obtain financing.

This company then evolved into the current Ford Motors. Google began as a partnership with Larry Page and Sergey Brin while they were still PhD students, then was quickly incorporated once they realized the potential. The danger, of course, in starting a business with a friend or friends is that the stress of the work and the decisions will harm the relationship and the business both. These two men knew each other well. And they worked out the balance of responsibility for business operations.

That's why the partnership agreement is so important. One other type of partnership is known as a co-op. And it's a cooperative form of ownership. Like a public company, everyone has a share of the business. And each person contributes toward its success.

Co-ops are often organized around a single goal, such as a co-op developed to provide organic food to its members. All right, that was nicely done. In this lesson, we learned about sole proprietorships and partnerships and the advantages and disadvantages of each. Thanks for your time, and have a great day.