Entrepreneurship: The Act of Starting a Business

Earlier in the series, when discussing the four factors of production, we introduced

the concept of entrepreneurship.

This is the act of starting a new business venture, which involves taking on financial

risk in the hope of making money.

Those who take on that financial risk are called entrepreneurs.

Entrepreneurs create, organize, and operate businesses.

Let’s talk a bit more about the concept of starting your own business now.

The easiest business to create is one where you are the only owner.

This is called a sole proprietorship.

In a sole proprietorship, the lone entrepreneur earns all the profits and is personally responsible

for all of its debt.

This type of entrepreneurship is the most common around the world.

In the United States, more than 70 percent of businesses are organized as sole proprietorships.

Freelance artists or writers, local landscapers, housekeepers, there are many examples that

immediately come to mind.

In contrast, a partnership is a business organization owned by two or more people who agree on a

specific division of responsibilities and profits.

Partnerships fall into three categories: general partnerships, limited partnerships, and limited

liability partnerships.

The most common of the three is general partnerships, in which all partners share equally in responsibility,

and each partner has total liability, meaning they are personally responsible for the business’

debts and liabilities.

Typically we see these with people in the same business, like doctors, lawyers, accountants,

and other professionals who team up.

Next are limited partnerships, in which only one partner is required to be a general partner.

In other words, only one partner has total personal liability for the business.

The remaining partner or partners only contribute money.

The third type of partnership, limited liability partnerships, means that all partners are

limited partners.

Essentially, they function like a general partnership, but all partners have a limited

personal liability in certain situations.

Limited personal liability means that each partner is not held personally responsible

for the business’ debts or the actions of the other partners.

So why start a partnership?

Well, like sole proprietorships, partnerships don’t have to worry about much government

regulation.

Partnerships also benefit from an enhanced ability to raise capital.

If more than one person is contributing capital, they can more easily expand the business.

It’s power in numbers.