A proprietorship essential results when a person decides to independently engage in production, that is, to exert the entrepreneurship resource.

• When little Stu Stankovilla earns a little extra spending money during the summer months painting house numbers on mailboxes, then he has a proprietorship business.


• When Dan Dreiling works as an independent contracting installing drywall in newly constructed homes, then he has a proprietorship business.


• When Becky Carpenter sells furniture that she fabricates in her garage at craft shows around the state, then she has a proprietorship business.

Phil the Gardener

Most important, he shares the profits (and losses) with no one. If a worldwide shortage of zucchinis drives the price higher, then Phil enjoys greater profit. Then again, the downside is that Phil also incurs all losses. If a zucchini blight wipes out his zucchini crop for the year, then Phil incurs a loss.

Complete Control

If Phil wants to wait an extra day before harvesting zucchinis, the decision is his. He need not seek approval from a supervisor who might be more interested in buying a bigger desk than growing zucchinis. He controls the business. Should his decisions be good, he reaps the reward. Should his decisions be bad, he incurs the loss.

A Lot of Liability

Suppose, for example, that Phil comes out on the losing end of a lawsuit filed by dozens of customers sickened by a deadly pesticide applied to his zucchinis. As a proprietor, Phil is personally liable for the damages. Any and ALL of Phil's assets could be used to pay the damages, including those totally unrelated to the zucchini business. Phil might have to sell the speed boat and motor home that he won on the TV game show. He might have to cash in the 10,000 shares of OmniConglomerate, Inc. corporate stock that he received as a birthday present from Winston Smythe Kennsington, III.

Small Time Operators

The small scale of operation means that industries populated by proprietorships tend to be relatively competitive. And with greater competition comes the greater likelihood of efficiency. In the real world, industries with proprietorships would tend to fall in the relatively efficient market structure category of monopolistic competition.

However, on the downside, small operations means proprietorships are less likely to take advantage of economies of scale and engage in low-cost mass production. Moreover, proprietorships seldom have access to the resources needed to develop and distribute product innovations.

The Other Two

• Partnership: A business owned and operated more or less equally by two or more people. Like proprietorship, the owners and the business are legally considered one and the same. As such, each owner also has unlimited liability, which means that any owner is held personally responsible for any and all debts of the business, including those of a partner. This form of business is common for professional-types, including lawyers, accountants, dentists, and physicians.


• Corporation: A business established through ownership shares (or corporate stock). A corporation is considered a distinct legal person, that can be sued, forced to pay taxes, etc., comparable to a human person. Unlike proprietorships and partnerships, a corporation exists separately from its owners. As such, the owners have limited liability. Owners cannot be held personally responsible for corporate debts. The owners can only lose the value of their ownership shares, but no more.