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Corporations and Other Types of Businesses, Proprietorships and Partnerships

unlimited liability, bankruptcy laws, sole proprietorships, personal savings, debts

Sole proprietorships are typically owned and operated by one person or family. The owner is personally responsible for all debts incurred by the business, but the owner gets to keep any profits the firm earns, after paying taxes. The owner’s liability or responsibility for paying debts incurred by the business is considered unlimited. That is, any individual or organization that is owed money by the business can claim all of the business owner’s assets (such as personal savings and belongings), except those protected under bankruptcy laws.

Normally when the person who owns or operates a proprietorship retires or dies, the business is either sold to someone else, or simply closes down after any creditors are paid. Many small retail businesses are operated as sole proprietorships, often by people who also work part-time or even full-time in other jobs. Some farms are operated as sole proprietorships, though today corporations own many of the nation’s farms.

Partnerships are like sole proprietorships except that there are two or more owners who have agreed to divide, in some proportion, the risks taken and the profits earned by the firm. Legally, the partners still face unlimited liability and may have their personal property and savings claimed to pay off the business’s debts. There are fewer partnerships than corporations or sole proprietorships in the United States, but historically partnerships were widely used by certain professionals, such as lawyers, architects, doctors, and dentists. During the 1980s and 1990s, however, the number of partnerships in the U.S. economy has grown far more slowly than the number of sole proprietorships and corporations. Even many of the professions that once operated predominantly as partnerships have found it important to take advantage of the special features of corporations.

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