Types of Business Ownership - Essay Example

TYPES OF BUSINESS OWNERSHIP ID NUMBER ENG 103: RESEARCH WRITING TECHNIQUES SECTION NUMBER DR TREVOR MAHY TUESDAY, 18 NOVEMBER WORD COUNT: 1027 WORDS Outline I. Introduction II. Sole Proprietorship A. What is a sole proprietorship? B. Advantages of sole proprietorship C. Disadvantages of sole proprietorship III. General Partnership A. What is a general partnership? B. Advantages of general partnership C. Disadvantages of general partnership IV. Corporation A. What is a corporation? B. Advantages of corporation C. Disadvantages of corporation V. Conclusion Types of Business Ownership Business ownership defines the way a business is organized and operated (Wilson, Notman, and Guest, 41). There are four main types of businesses. These include sole proprietorships, general partnerships, corporations, and cooperatives (Wilson, Notman, and Guest, 41). Some even classify franchises as a form of business on its own. However rather than being a standalone form of business ownership, franchises combine many features of the above four mentioned types. The different types of businesses mainly differ in their liability for taxation and lawsuits or in their control over decision making (Elash, 2). Therefore, the various types of businesses are dictated by their ownership which is important in determining its organization, management, and other legalities. This paper will attempt to analyze and evaluate which form of business ownership is more suitable given the situation. Sole proprietorships are the easiest and most common forms of businesses that are owned by a single owner (Nevada Small Business Development Center, 1). There are no major costs involved with minimal legal costs pertaining to the attainment of a business license after which operations can be started (US Small Business Administration, 3). Any income earned from the business remains undivided and all the earnings become an income for the individual owner. The advantages of a sole proprietorship are therefore apparent. Firstly, sole proprietorships are easy and inexpensive to set up. Secondly, owners enjoy full control over the business from management to decision making and income. Lastly, sole proprietorships involve single taxations, which means that only the owner of the business is taxed. In other words, the business is not taxed again as a separate entity. However, sole proprietorships also have many disadvantages. These include unlimited liability, which means that if the business makes a loss, then only the owner will have to bear the damages (Wilson, Notman, and Guest, 41). Also, the involvement of a single owner often makes it harder to raise money. Unlike corporations, sole owners cannot sell shares to their company in order to raise money. And finally, single owners have to bear all successes and failure alone which can prove very detrimental if the business involves heavy losses. A partnership is a type of business which is collectively owned by two or more business owners. General partnerships are sub-types of a partnership and assume the equal division of profits, liabilities, and management responsibilities unless documented otherwise as an unequal proportion. Another feature of a general partnership is its unlimited liability where every partner is equally liable for the debts of the other partner(s). General partnerships like other forms of partnerships involve relatively more legalities and documentations that are required in order to set up a business. General partnerships have many advantages. Firstly, general partnerships – although they require more documentation as compared to sole proprietorships – are relatively easier and inexpensive to set up as compared to corporations (US Small Business Administration, 6). Secondly, partners share their resources, which is why it is easier to raise money and hence, can benefit from shared monetary commitment. Also, the added skills of every partner are beneficial for the business and there is also the benefit of having the risk and losses shared among the partners so that the load is pacified. The presence of a joint and unlimited liability is the most prominent disadvantage for partners. This is because every partner is liable for the debt of other partners. Another disadvantage of a partnership is that the profit is distributed among all the partners and hence, no single partner gets to keep the entire profit. Partnerships are also vulnerable to internal disagreements regarding greater control, decision making, and other matters which can weaken the business. Corporations are large scale businesses with an artificial identity and are formed after the signing of the articles of incorporation according to the laws of a particular state. This marks the formation of a C corporation (Nevada Small Business Development Center, 2). A corporation may consist of many more owners than an average partnership as stock or share holders. The formation of a corporation as well as its functioning is more complex and involves several documentation, legalities, and expensive known as administrative costs. Corporations are also taxed more than sole proprietorships or general partnerships. Acquiring of licensing, registration with the relevant authorities, and heavy taxation characterize corporations which mainly consist of several owners in the form of share holders. The biggest advantage of having a corporation is that it involves limited liability. This means that in case a loss is incurred, then the owners or the share holders are only responsible for their share of investment in the company. Hence, they are not responsible for business debts and have their assets protected. Also, due to large number of owners and share holders, corporations are able to easily generate capital. They do this by issuing more shares. Such organizations or businesses often introduce employee stock programs, which is an important compensation for employees to stay motivated. Corporations also have its disadvantages. Firstly, the formation of a corporation is timely and involves high costs. This starts from expensive feasibility reports, hiring or corporate lawyers, and the fulfillment of legal requirements costs quite a bit. Secondly, corporations involve double taxation. This means that an owner is taxed separately as well as the corporation as an entity. Thirdly, a lot of paper work and documentation is required in order to set up a corporation which is generally larger in scale and operations. Another factors is the involvement of large business risk. In the end, I would choose Corporation due to its greater capacity to earn profits. After evaluating its positive and negative points, I have decided that corporations are the most lucrative to invest in. They are large, owned by many shareholders and thus have a great capacity to raise capital. At the same time, it can earn large amounts of profits from its expertise and pay off the initial costs involved in setting up the business. Also, corporations have a greater reach as compared to sole proprietorships and partnerships which is why they can easily penetrate the market and even expand internationally. Hence, I have chosen corporations due to their potential. Works Cited Choose Your Business Structure. The U.S. Small Business Administration, 2014. Print. Elash, Anita. Inc. Or Ltd.: Which Sounds Better?. 1st ed. The Globe and Mail, 2012. Print. Forms Of Business Ownership. Nevada Small Business Development Center, 2014. Print. Wilson, Jack, David Notman, and Lorie Guest. The World Of Business. Scarborough, Ont.: Nelson Thomson Learning, 2007. Print. Read More