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Let’s start with the analysis of single proprietorship. There are almost 10 million of tiny businesses that make less than $50 000 per year in USA. Some of these ventures are successful. But most of them barely earn a minimum wage for its owners. The major obstacle to starting a small business is getting the initial capital. Let us suppose you decide to start business of computer software. You have the right skills and you can borrow as much money as you need. At the end of the month everything that is left over as profits is yours. But the losses of business are all yours too. If your sails fail to cover the costs, your creditors can take your home, car, etc. In other words an individual proprietor has unlimited liability. All your property, except a small minimum is available to meet the debts. But in our case your software business is successful. Still you are in lack of money, because you are not paid in advance for your sales, but you have to pay to your employees and suppliers promptly. You look around for funds. This time it is not so easy, because even an innovative bank will hesitate before providing capital to such a risky business like yours. Perhaps it is time to look for a partner.
Any two people can get together and form a partnership. After looking at your disks your friend contributes $80 000 in return for one third of the firm. You receive two thirds of all the profits or losses, he gets one – third. And again your business continues to grow. Why? …