Forms of Business Ownership

Written by Peyton Arata

Sole Proprietorship

This type of business ownership occurs when one individual owns the entire business. They are responsible for both the finances and all the decisions that the business must make.


Advantages:

1) The sole owner has complete control over business transactions and purchases

2) They also have complete control over all other company decisions

3) Sales and transfers take place at the discretion of the sole proprietorship

4) There are no corporate tax requirements

5) Minimal legal costs are involved

6) There are also few formal business requirements


Disadvantages:

1) The sole proprietorship can be held personally responsible for the debt and obligations of the business

2) Risk extends to any liabilities incurred as a result of acts committed by employees of the company

3) All responsibilities and business decisions fall on the shoulders of the sole proprietor

4) Investors won't usually invest in sole proprietorships

5) Most sole proprietors rely on loans and personal assets to initially finance their business


(Facts gathered from the New York Times)

Partnership

A partnership business is a business that is ran by an association of two or more people, each of whom are responsibly for making decisions, and in which the businesses profits and losses are shares proportionately.


Advantages:

1) Easy to establish

2) Since there is more than one owner, the ability to raise funds is increased

3) Prospective employees are more likely to be drawn to the business because there is the possibility that they can become a partner

4) There is a wider pool of contacts, connections, and overall general knowledge

5) Partners provide moral support


Disadvantages:

1) Partners are jointly and INDIVIDUALLY liable for the actions of the other partners

2) Profits are shared with all partners

3) Decisions need to be mutual, so disagreements can arise

4) Partnerships have a limited life span, one person may withdraw from the company or die

5) Partnerships usually have limitations that keep it from becoming to large


(Facts gathered from How-To-Start-A-Business-Guide.com)

Corporation

A corporation is a company or group of people who come together to lead a business. In the eyes of the law they are seen as a single entity, and each member is held equally accountable for the profits and losses of the business.


Advantages:

1) A corporation's shareholders are not liable for any debts incurred or judgments handed down against the corporation

2) Shareholders only risk their equity in the corporation

  • 3) Corporations can raise additional funds by selling shares in the corporation
  • 4) Some corporations may be able to elect treatment as an S corporation, which exempts them from federal income tax other than tax on certain capital gains and passive income

    5) There are multiple owners, which means more connections and assets poured into the business


    Disadvantages:

    1) Multiple owners, which means multiple ways of thinking, which can lead to many disagreements over decisions

    2) Forming a corporation requires more time and money than forming other business structures

  • 3) Governmental agencies monitor corporations
  • 4) Corporate profits may be subject to higher overall taxes since the government taxes profits at the corporate level and again at the individual level
  • 5) A corporation may not deduce from its business income any dividends it pays to its shareholders

  • (Facts gathered from Justia.com)

    Franchise

    There are many different categories of franchise ownership. But to sum them all up, a franchise ownership is when one person (or a partnership) buys the rights to a chain brand - like say, McDonald's - and then they open that store in an area close to them. The owners of each location are held responsible for the profits, losses, and legal issues associated with their distinct location.


    Advantages:

    1) Instant brand recognition

    2) Pre-existing customer base

    3) Less time and money spent advertising

    4) Receive support from the franchise HQ


    Disadvantages:
    1) Cost a lot to buy into

    2) Corporate regulations require franchisees to forfeit a set percentage of monthly profits to the company in the form of royalties

    3) You will have to use corporate marketing materials, packaging and uniforms. For the creatively minded entrepreneur, the lack of decision making options can be a hindrance.


    (Facts gathered from SmallBusiness.chron.com)

    Big image

    Sole Propietor

    A sole proprietor makes all the decisions and is soley in charge of the business. They get all the profit and can either benefit the most or lose the most.