Forms of Business Ownership
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When pondering the notion of a new business, one of the key decisions that must be made is the form of business ownership. In choosing from one of the many options, it is important to consider the advantages and disadvantages of each form. Match the type of business you wish to have with your particular talents, your financing options and the lifestyle you wish to have. Sole Proprietorship  A sole proprietorship is a business owned by only one person. This is the most common form of ownership, and it is the easiest and the cheapest type of business to form. Advantages: As the sole owner, you have complete control over your business. In exchange for assuming all of the responsibility, you get all of the income from tbe business. Disadvantages: You need to supply all of the different talents that may be necessary in order to make the business a success. You also assume all of the liability, and you need to come up with all of the cash. Any money that comes into the business comes from you. Any loans are made to you personally, rather than to the business. The point about liability is perhaps the most important, and one that business owners often fail to give due consideration. When you are the sole proprietor, all of your assets are vulnerable in the event of a lawsuit or bankruptcy. If things go sour, you could end up losing more than just your business... Partnerships  This is a business that is owned jointly by two or more people. Ideally a partnership is formed with a well-planned partnership agreement which details the contributions and responsibilities of each party. Advantages: Partnerships are relatively easy and inexpensive to set up. A group of partners brings to the business a more diverse set of talents and abilities than a sole proprietor. Partners can also bring their resources to bear, which makes financing easier. Disadvantages: In a general partnership, each partner is liable not only for his or her own actions, but also for the actions of all the partners. If your partner opens the company to a lawsuit (or burns down the building, or what have you), you are just as liable as he is, and as with the sole proprietor, your personal assets are vulnerable. Because of this, limited partnerships are somewhat more popular. In a limited partnership, one partner is designated the general partner who runs the business and is responsible for its liabilities. The other partners are limited partners whose liability is limited to the amount of their investment. With either type of partnership, liability and profits are shared amongst the participants. Corporation  One could certainly argue that the corporation has proven to be the most effective form of business in the United States. A corporation is a legal entity that is separate from the parties who own it, thus protecting them from a liability standpoint. Advantages: There are several advantages to the corporation as a form of business ownership, including limited liability for shareholders, greater access to financial resources, specialized management and business continuity. Disadvantages: Corporate managers are not necessarily stock holders, and may not be personally invested in the success of the company. Corporations can also be costly to set up and are subject to levels of regulation and governmental oversight that can be a significant burden on a small business. Other Types of Business Ownership The above types of business ownership are certainly the most common, but by no means the only options. Other types of ownership include: - Non-Profit Corporation - Cooperative - Limited Liability Company - S-Corporation The above image is made available through: CreativeCommons.org  Derivative by Athivia College (2010), Original materials: Collins, Karen., Exploring Business. Retrieved Apr 8, 2010 from http://www.flatworldknowledge.com/node/123782 . Collins, Karen. Exploring Business. 1969 . Flat World Knowledge. 8 Apr, 2010. |
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