Various Types of Business Ownership

Various Types of Business Ownership. 

Recently at a talk that I gave to a group of budding entrepreneurs a question was brought up about the various types of business ownership. The following is about what a business is and the various forms of ownership.

What Is Business?

A business is also called as enterprise, firm, or agency. It has many different names but the functions are almost the same that it always involves goods and or services to consumers. Most businesses are privately owned and provide goods and services to customers in exchange to other goods, services and especially for money. Every country has its own different business laws and rights to every business entity. All businesses involve an investment and customers to whom the goods and services can be sold on to make a profit.

A business can be privately owned, not for profit or in some countries they are state owned. There are many businesses out there but they always belong to particular classifications such as a Music Business, Agribusiness, Food Business and etc. The goal of every business is always to provide goods and services to customers which results in a profit to the owner or owners of the business.

Basic Forms of Business Ownership

There are many forms of business ownership but here we will tackle the most common ones.

  • Sole Proprietorship – Sole proprietorship is also known as sole trader. It is a kind of business that is usually owned and managed by one person only. This is the most common form of business ownership. It has many advantages such as: being the boss, you can start or end the business easily and the profit of the business is all yours. But it has downsides also like: the liability and obligations are all yours and the investment needed for the business will only come from you so you will really need start up money.
  • Partnership – This is a business between two or more people. Partnership is the least common form of business ownership. This is because out of all businesses, it makes the least amount of profits. But it has many advantages also like: large amount of financial resources, management and knowledge of the business partnerships are being shared and because of those two advantages the business has a greater chance of survival. Then the disadvantages on the other hand are: unlimited liability, division of profits to the other partners, different opinions which can result in problems in managing the business.
  • Corporation – A Corporation is a basic form of business ownership that the owners have limited liability. The legal personality of the business is separate from its owners. Can be organized either for profit or as not-for-profit institutions. The owners of a corporation are called shareholders. Then the shareholders will elect a board of directors that will direct the corporation and hire its managerial staff. A for-profit corporation can be privately owned by a small group of individuals, or can also be publicly owned with their shares listed on a stock exchange.
  • Limited Liability Companies – These companies are sometimes called as LLC. A new type of hybrid business structure that is now very common in most countries. This type of business ownership has characteristics of both corporations and partnerships. LLCs are not incorporated businesses thus we cannot consider it as a corporation. LLC provides limited liability features of a corporation. Also it has the tax advantages and the operational flexibility that comes from the feature of a partnership. The formation of this type of business ownership is more complex yet offers lots of advantages.
  • Cooperative – Most people call this as “Co-op”, a type of business ownership that can either be for-profit and not-for-profit. This business is owned and operated by a group of individuals. Corporations have shareholders but cooperatives have members and they all share an equal decision making authority. There are two types of cooperatives: consumer cooperatives and the worker cooperatives. Some cooperatives are incorporated and some are unincorporated depending on its business structure.

Hopefully this helps in understanding the various form of business ownership.

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