Submitted by: Submitted by BarbaraKnights2
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Category: Business and Industry
Date Submitted: 05/22/2014 04:52 PM
Define sole proprietorships and partnerships. Describe the differences between private equity funds and venture capital funds.
Sole proprietorships-- a business owned and run by one person; do not account for much sales revenue in the economy; the most common type of firm in the world (Edition, p. 3). Moreover, 71% of businesses in the United States are sole proprietorships, although they generate only 5% of the revenue .Contrast this with corporations, which make up only 19% of firms but are responsible for 84% of U.S. revenue. (Edition, p. 3).
Partnerships- limited liability companies-a partnership with two kinds of owners, general partners and limited partners. General partners have the same rights and privileges as partners in a (general) partnership—they are personally liable for the firm’s debt obligations. Limited partners, however, have limited liability—that is, their liability is limited to their investment. Their private property cannot be seized to pay off the firm’s outstanding debts. Furthermore, the death or withdrawal of a limited partner does not dissolve the partnership, and a limited partner’s interest is transferable. However, a limited partner has no management authority and cannot legally be involved in the managerial decision making for the business. (Edition, pp. 4-5)
Private equity funds and venture capital funds are two examples of industries dominated by limited partnerships; a few general partners contribute some of their own capital and raise additional capital from outside investors who are limited partners. The general partners control how all the capital is invested. Most often they will actively participate in running; the businesses they choose to invest in. The outside investors play no active role in the partnership other than monitoring how their investments are performing. (Edition, p. 5). Therefore, limited liability company (LLC) is a limited partnership without a general partner. That is, all the owners have...