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ECO N O M I C S PAC ES E T T E RMary Kay Ash: Going It AloneFAST FACTSMary Kay AshTitle: Founder of MaryKay Inc.Born: May 12, 1918Died: November 22, 2001Major Accomplishment: Creating Mary KayInc., a company that offerswomen unique rewards forbusiness successSales Milestones:1965— 800 thousand1991— 500 million2005— 2 billionMary Kay CareerCars: Sales people whohave qualified for a pinkCadillac or other MaryKay career car: more than100,000Famous Quotation:“If you think you can, youcan. And if you think youcan’t, you’re right.”Find an update onMary Kay Inc. atClassZone.comDo you have what it takes to “go it alone” as an entrepreneur? See how many of thesequestions you can answer with a “yes.” Are you willing to take risks? Can you live with uncertainty? Are you self-confident? Are you self-directed, able to set and reach goals for yourself? Are you optimistic, energetic, and action-oriented?Like other entrepreneurs, Mary Kay Ash had all of these qualities. She used them toturn 5,000 in personal savings into Mary Kay Inc., a business that now sells billionsof dollars of cosmetics and other merchandise every year.Building a BusinessWhile raising three children on her own, Ashbuilt a very successful career in direct sales.In 1963, however, Ash suffered a blow whenshe lost out on a promotion that was giveninstead to a man she had trained. Feelingshe had been treated unfairly, Ash resolvedto create an enterprise that would rewardwomen for their hard work. Later that year,she started a cosmetics company with herson Richard and nine sales people—whomAsh referred to as “beauty consultants.” In1964, sales exceeded 198,000. By the endof 1965, sales had skyrocketed to more than 800,000.Since its founding, Mary Kay productshave been sold at in-home parties rather than instores. Mary Kay has always had distinctive programsfor recognizing women who reached certain goals. PinkCadillacs, diamond-studded jewelry, luxury vacations, and Mary Kay Ashother incentives spur the sales representatives to greater and Mary Kay Ash grew her business into a major corporation.greater efforts.In 1987, Ash assumed the title of chairman emeritus,though she remained active in the company until her death in 2001. Her companyand its culture continued to flourish. In 2005, over 1.6 million Mary Kay beauty consultants operated in more than 30 countries worldwide. As the company expandedglobally, China became Mary Kay’s largest market outside the United States.A P P L ICAT IONMaking InferencesC. Why do you think Mary Kay Ash proved so successful in her cosmetics venture?230 Chapter 8

SECTION1AssessmentREVIEWING KEY CONCEPTSClassZone.comE C O N O M I C S I N P R AC T I C E1. Explain the relationship between the terms in each of these pairs:a. business organizationsole proprietorshipb. limited lifeunlimited liability2. What are the main advantages of a sole proprietorship?3. What are the main disadvantages of a sole proprietorship?4. Who gets the profits from a sole proprietorship? Who has to payall the debts?5. What steps do new sole proprietorships usually need to takebefore they can open?6. Using Your Notes Select one of the businesses you identifiedin Application A on page 227. If you were starting that business,do you think the advantages of a sole proprietorship wouldoutweigh the disadvantagesSole Proprietorshipsor vice versa? Why? ReferAdvantagesDisadvantagesto your completed chart asyou formulate your answer.Use the Graphic Organizerat Interactive Review @ClassZone.comCRITICAL THINKING7. Evaluating Economic Decisions Suppose Cosmic Comicsbecomes very successful, and Bart decides to try opening asecond store. What issues should Bart consider? What challengeswill he face?8. Making Inferences and Drawing Conclusions In whatways might limited life be considered an advantage for soleproprietors?9. Applying Economic Concepts Explain how a soleproprietorship rests on the principles of free enterprise.10. Writing About Economics Write a brief paragraph explainingwhat Bart might learn from Mary Kay Ash.11. Challenge How many “yes” answers did you provide to thequestions at the top of page 230? If you had one or more “no”answers, explain how you would change a sole proprietorship inorder to suit your skills and abilities. If you answered “yes” to allof the questions, explain what you would like about running yourown business.Business fairs promote new opportunities.Starting Your Own BusinessEach year, thousands of Americansstart businesses as sole proprietorships.Write a Business Plan Choose abusiness that you might like to startas a sole proprietorship. Use thefollowing questions to develop aplan that shows how the business willmake a profit. How much money will it take tostart the business? Detail eachexpense. How much money will it take torun the business each month?Detail each expense. Who will the customers be andhow will you attract them? Once the business is established,how much will it earn each month?Detail each source of income. How much profit will you earn?Challenge What challenges do youthink you would face in making thisbusiness a success? Write a paragraphexplaining how you would addressthese challenges.Types of Business Organizations 231

SECTION2Forms of PartnershipsOBJECTIVESKEY TERMSTA K I N G N O T E SIn Section 2, you willpartnership, p. 232 identify the characteristics andtypes of partnershipsgeneral partnership, p. 233 compare the economicadvantages and disadvantagesof partnershipslimited liability partnership, p. 233As you read Section 2, complete acomparison and contrast chart toshow similarities and differencesbetween partnerships and soleproprietorships. Use the GraphicOrganizer at Interactive Review@ ClassZone.comlimited partnership, p. 233SoleProprietorshipsOne ownerPartnershipsTwo or moreownersThe Characteristics of PartnershipsKE Y CON CE P T SQUICK REFERENCEA partnership is abusiness co-owned bytwo or more partnerswho agree on howresponsibilities, profits,and losses of that business are divided.232 Chapter 8In Section 1, you read how Bart set up his business as a sole proprietorship. His sister,Mary, who is a whiz at bookkeeping, began helping him with the accounting tasks.As her role in the business expanded, Bartproposed that they join forces in a partnership. A partnership is a business co-ownedby two or more people, or “partners,” whoagree on how responsibilities, profits, andlosses will be divided. Bart lacks the bookkeeping skills his sister has, and the extrafunds she brings could help Cosmic Comics to grow. Forming a partnership mightbe a good business decision.Partnerships are found in all kinds ofbusinesses, from construction companiesto real estate groups. However, they areespecially widespread in the areas of professional and financial services—law firms,accounting firms, doctors’ offices, andinvestment companies. There are severaldifferent types of partnerships—generalpartnerships, limited partnerships, andlimited liability partnerships—but they areall run in the same general way.

T YP E 1General PartnershipsThe most common type of partnership is the general partnership, a partnershipin which partners share responsibility for managing the business and each one isliable for all business debts and losses. As in a sole proprietorship, that liability couldput personal savings at risk. The trade-off for sharing the risky side of the businessenterprise is sharing the rewards as well. Partners share responsibility, liability, andprofits equally, unless there is a partnership agreement that specifies otherwise. Thistype of partnership is found in almost all areas of business.T YP E 2Limited PartnershipsIn a general partnership, each partner is personally liable for the debts of the business, even if another partner caused the debt. There is a way, however, to limit one’sliability in this kind of business organization. This is through a limited partnership,a partnership in which at least one partner is not involved in the day-to-day runningof business and is liable only for the funds he or she has invested.All limited partnerships must have at least one general partner who runs thebusiness and is liable for all debts, but there can be any number of limited partners.Limited partners act as part owners of the business, and they share in the profits.This form of partnership allows the general partner or partners to raise funds to runthe business through the limited partners.T YP E 3QUICK REFERENCEIn a general partnership partners sharemanagement of thebusiness and each one isliable for all business debtsand losses.A limited partnership is one in which atleast one partner is notinvolved in the day-to-dayrunning of business and isliable only for the funds heor she has invested.In a limited liabilitypartnership (LLP), allpartners are limited partners and not responsiblefor the debts and otherliabilities of other partners.Limited Liability PartnershipsAnother kind of partnership is the limited liability partnership (LLP), a partnershipin which all partners are limited partners and not responsible for the debts and otherliabilities of other partners. If one partnermakes a mistake that ends up costing thebusiness a lot of money, the other partnerscannot be held liable. In LLPs, partners’personal savings are not at risk unless thedebts arise from their own mistakes.Not all businesses can register asLLPs. Those that can include medicalpartnerships, law firms, and accounting firms. These are businesses in whichmalpractice—improper, negligent, orunprincipled behavior—can be an issue.LLPs are a fairly new form of businessorganization, and the laws governingthem vary from state to state.Partnerships Doctors’ offices are often run as limitedliability partnerships.AP P LIC AT IONComparing and Contrasting Economic InformationA. What are the differences in liability that distinguish general partnerships, limitedpartnerships, and limited liability partnerships?Types of Business Organizations 233

Partnerships: Advantages andDisadvantagesKE Y CON CE P T SSome of the economic advantages of partnerships are similar to those of sole proprietorships. Like sole proprietorships, partnerships are easy to set up and dissolveand have few government regulations. Compared with sole proprietorships, however, partners have greater access to funds. Also, possibilities exist for specializationamong partners, which can promote efficiency.The disadvantages of partnerships are similar to the disadvantages of sole proprietorships. Like the sole proprietor, at least one of the partners, except in LLPs,faces unlimited liability. Partnerships, too, have limited life. However, partnershipshave at least one disadvantage that sole proprietorships avoid. Disagreements amongpartners can lead to serious problems in running the business.A D VA N TA G E SPartnershipsBart and Mary realized that if they formed a partnership they would benefit fromsome of the same advantages that sole proprietorships have, plus some importantadditional advantages.Easy to Open and Close Partnerships, like sole proprietorships, are easy to start upand dissolve. Ending the partnership would be equally straightforward for Bart andFIGURE 8.2PARTNERSHIPS BY REVENUES4.7%7.3%6.2%54.0%More than 1 million 500,000– 1 millionFind an update onpartnerships atClassZone.com 250,000– 499,99911.0% 100,000– 249,999 50,000– 99,999 25,000– 49,9998.7%Less than 25,000The majority ofpartnershipsare quite small,making less than 25,000 in salesduring a year.However, closeto 20 percent ofpartnerships takein yearly revenues in excessof 250,000.8.1%Source: Internal Revenue Service, 2003 dataANALYZE GRAPHS1. What percentage of partnerships made more than 100,000 in sales?2. Some 7 percent of partnerships took in more than 1 million in revenues, compared tojust 0.5 percent of sole proprietorships. Why do you think partnerships generate morerevenues than sole proprietorships?234 Chapter 8

his sister. As long as they have settled all their bills, Bart and Mary may dissolve thepartnership when they see fit.Few Regulations Bart and Mary would not be burdened with a host of governmentregulations. They would enter into a legal agreement spelling out their rights andresponsibilities as partners. Partners are covered under the Uniform PartnershipAct (UPA), a law, adopted by most states, that lays out basic partnership rules.Access to Resources Mary would bring additional funds to Cosmic Comics.In addition, partnerships generally make it easier to get bank loans for business purposes. A greater pool of funds also makes it easier for partnerships to attract andkeep workers.Joint Decision Making In most partnerships, partners share in the making of busi-ness decisions. This may result in better decisions, for each partner brings his or herown particular perspective to the process. The exception is limited partnerships, inwhich the limited partner does not participate in running the business.Specialization Also, each partner may bring specificskills to the business. For example, Bart brings knowledge of comic books, while Mary, who studied businessaccounting in college, brings skills in bookkeeping andfinance. Having partners focus on their special skillspromotes efficiency.DIS ADVA N TA G E SPartnershipsBart and Mary also considered the disadvantages ofpartnerships.Unlimited Liability The biggest disadvantage of mostpartnerships is the same as that of sole proprietorships:unlimited liability. Both Bart and Mary are personallyresponsible for the full extent of the partnership’s debtsand other liabilities. So they risk having to use theirpersonal savings, and even having to sell their property,to cover their business debts.Joint Decision Making Partners benefit by makingdecisions together. But sometimes disagreements can interferewith running the business.Potential for Conflict As partners, they may encounter a new disadvantage as well.Having more than one decision maker can often lead to better decisions. However,it can also detract from efficiency if there are many partners and each decisionrequires the approval of all. Further, disagreements among partners can become sosevere that they lead to the closing of the business.Limited Life Like sole proprietorships, partnerships have limited life. When apartner dies, retires, or leaves for some other reason, or if new partners are added,the business as it was originally formed ceases to exist legally. A new partnershiparrangement must be established if the enterprise is to continue.AP P LIC AT IONApplying Economic ConceptsB. Consider the businesses you identified in Application A on page 227 of Section 1.Would these businesses work as partnerships? Why or why not?Types of Business Organizations 235

ECONOMICSSKILLBUILDERFor more information on distinguishing fact from opinion,see the Skillbuilder Handbook, page R27.Distinguishing Fact from OpinionFacts are events, dates, statistics, and statements that can be proved to be true. Factscan be checked for accuracy. Economists use facts to develop opinions, which maybe expressed as judgments, beliefs, or theories. By learning to distinguish betweenfacts and opinions, you will be able to think critically about the economic theories,interpretations, and conclusions of others.TIPS FOR ANALYZING TEXT Use the following guidelines to analyze economicinformation in written works:FIGURE 8 . 3STARTS AND CLOSURES OF SMALL EMPLOYER FIRMS20002001200220032004New Firms574,300585,140569,750553,500580,990Firm tcies35,47240,09938,54035,03734,317Facts used byeconomists areoften in the formof statistics, likethe ones in thistable.Sources: U.S. Bureau of the Census; Administrative Office of the U.S. Courts; U.S. Department of Labor,Employment and Training Administration.Opinions.Look for words,such as suggest,suggesting,belief, andbelieve, whichoften expressassertions, claims,and hypotheses.Many Americans have faith that their ideas will bring themwealth or at least a comfortable living. According to the U.S.government, Americans created more than half a million smallfirms, or businesses, in the United States each year from 2000to 2005. While prospective entrepreneurs may interpret thesefigures as a small business bonanza, overall closures of smallbusinesses also exceeded the half-million mark each year duringthe same period. And in 2002 and 2003, more small firms closedtheir doors than opened them, suggesting that market conditionsfor those two years were particularly unfavorable for theprolonged success of small businesses. Yet bankruptcies amongsmall firms declined in 2002 and 2003. Although such data arelikely to be of interest to prospective entrepreneurs, it is limitedin nature. Anyone planning to start a business venture would bewise to conduct more extensive research.T H IN K IN G E CON OMICA LLYFacts includeeconomic data thatcan be proved.The writer basesthis statement onverifiable factsfrom the table.Judgments,another form ofopinion, often usedescriptive wordssuch as wise,foolish, sensible,and fortunate,which have anemotional quality.Distinguishing Fact from Opinion1. What facts, if any, does the author use to support the first sentence in theparagraph?2. Using information from the table and article, write one statement of fact and onestatement of opinion. As a class, share your statements and discuss.236 Chapter 8

SECTION2AssessmentClassZone.comE C O N O M I C S I N P R AC T I C EREVIEWING KEY CONCEPTS1. Explain the relationship between the terms in each of these pairs:a. partnershipgeneral partnershipb. limited partnershiplimited liability partnership2. What are the main advantages of a partnership?3. What are the main disadvantages of a partnership?4. In what ways do the increased resources of a partnership help abusiness?5. What determines how partners will divide responsibilities, profits,and debts?6. Using Your Notes Which typeof partnership is most like a soleproprietorship? Explain your answerwith specific characteristics. Refer toyour completed chart.SoleProprietorshipsOne ownerPartnershipsTwo or moreownersUse the Graphic Organizer atInteractive Review @ ClassZone.comCRITICAL THINKING7. Applying Economic Concepts If you were looking to starta business as a partnership, what traits would you look forin potential partners? Draw up a list of five traits and give abrief explanation for each. Be sure to take the advantages anddisadvantages of partnerships into consideration.8. Comparing and Contrasting Economic Information Brieflyexplore the differences in potential for job satisfaction betweensole proprietorships and partnerships. One size does not fitall—try to determine which of these two business organizationswould suit you best.9. Writing About Economics American business leader John D.Rockefeller said, “A friendship founded on business is a good dealbetter than a business founded on friendship.” What do you thinkhe had in mind? Write a brief paragraph agreeing or disagreeing,with reference to partnerships.10. Challenge Do you think that major retail or manufacturingbusinesses would work as partnerships? Why or why not?Types of PartnershipsThe different types of partnershipssuit different types of busin

about the comic book business. So, few of his friends expressed surprise when Bart announced that he wanted to open a business selling comic books and related merchandise. Raising Funds Bart needed money to rent and renovate the space he found down-town and to buy new and used comics to stock the store. A hefty withdrawal from