Forms of Business Ownership

From the standpoint of ownership, business organizations may be of the following types;

  1. Sole Proprietorship.
  2. Partnership.
  3. Company.
  4. Cooperative Society.
  5. State Enterprise.

Forms of Business Ownership

Sole Proprietorship

A sole proprietorship is a for-profit business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has unlimited liability for the debts incurred by the business.

Partnership

A partnership is a form of for-profit business owned by two or more people. In most forms of partnerships, each partner has unlimited liability for the debts incurred by the business.

Company

A company is a limited liability business that has a separate legal personality from its members. The company can be either privately-owned or government-owned, and privately the owned companies can organize either for-profit or not-for-profit.

A privately-owned, for-profit company can either be privately held or publicly held. A for-profit company’s shareholders elect a board of directors to direct the corporation and hire its managerial staff.

Cooperative Society

Often’ referred to as a “co-op”, a cooperative is a limited-liability business that can be organized for-profit or not-for-profit.

A for-profit cooperative differs from a for-profit corporation in that it has members, as opposed to shareholders, who share decision-making authority.

Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

State Enterprise

Generally, an enterprise owned by the state is known as a state-owned enterprise or state enterprise.

For the expansion of the business, rapid industrialization and development, and to remove individual monopoly and to establish public interest and ownership, the state interferes in the business sector.

Considerations in Choosing the Form of Ownership

The following are a few considerations that every entrepreneur should review before choosing the form of ownership.

  1. Tax considerations

Because of the graduated tax rates under each form of ownership, constant changes to the tax code, and year to year fluctuations in a company’s income, an entrepreneur should calculate the firm’s tax bill under each ownership each year.

  1. Liability exposure

Certain forms of ownership offer business owners greater protection from personal liability due to financial problems, faulty products, and a host of other difficulties.

Entrepreneurs must weigh the potential for legal and financial liabilities for their company’s obligations.

  1. Start-up and future capital requirements

Forms of ownership differ in their ability to raise start-up capital. Depending on how much capital an entrepreneur needs and where she plans to get it, some forms are better than others.

Also, as a business grows, it’s capital requirements increase and some forms of ownership make it easier to attract financing from outsiders.

  1. Control

By choosing certain forms of ownership, an entrepreneur automatically gives up some control over the business.

Entrepreneurs must decide early on how much control they are willing to sacrifice in exchange for help from other people in building a successful business.

  1. Managerial ability

Entrepreneurs must assess their own ability to manage their companies.

If they lack skills or experience in certain areas, they may need to select a form of ownership that allows them to bring the company people who possess those skills and experience.

  1. Business goals

How big and how profitable an entrepreneur plans for the business to become will influence the form of ownership chosen.

Business often switches forms of ownership as they grow, but moving from some formats to others can be extremely complex and expensive.

For instance, business owners wanting to switch from a corporation to a limited, liability company face daunting liabilities under current tax laws. That conversion gets taxed as though the entire company was liquidated or sold off.

  1. Cost of formation

Some forms of ownership are much more costly and involved to create than others.

Entrepreneurs must weigh carefully the benefits and the costs of the particular form they choose, bearing in mind the financial implications of each.

  1. Management Succession

When choosing a form of ownership, business owners must look ahead to the day when they will pass their ventures on to the next generation or a buyer. Some forms of ownership make this transition much

Consideration of the above factors would lead the prospective entrepreneur to the right choice in the arena of business.