Main Types of Business Ownerships - Coursework Example

Business Functions Student’s Name Institutional Affiliation Course Name Date of Submission Business Functions Introduction Pride, Hughes and Kapoor (2014, p. 2) note that businesses play a critical part in the development of economies. In fact, the majority of successful economies today are driven mainly by business ventures. The U.S. economy is a classical example of the major economies that are largely driven by both small and multinational businesses. Accordingly, there are various types of business that an individual or groups of individuals can start. These include unincorporated businesses, such as sole proprietorships and partnerships and incorporated firms, including private and public limited companies. However, there are three main forms of business ventures that an individual or groups of people may start, including sole proprietorship, partnerships, and corporations. This discourse seeks to define the various types of business ventures. It will proceed to explore the three main forms of business ventures and the various factors that ought to be taken into consideration when starting a business. Type of Businesses To begin with, a business refers to any firm or a system involved in the exchange of services or products for money or another product/service. Typically, there are three main types of business structures. The first being the sole proprietorship, which is a business venture formed and run by a single individual and family members (Pride, Hughes & Kapoor 2014, p. 9). In sole proprietorship, the sole proprietor is responsible for capital and the management of the business single-handedly. However, the business owner can involve the family members to assist in the running of the business. Partnership is the other type of business venture. Partnership as the name suggests is a type of business venture formed by two or more members that come together for a common purpose. In partnership business, each member is required to contribute capital for purposes of starting and running a partnership business. Accordingly, partners are expected to share management, business profits and losses that might occur. The other type of business venture is corporations, including private and public limited companies. A private limited company is one formed by more than 20 members whose liability is limited to the shares held. However, in order to form a private limited company, it must have legal documents, such as articles and certificate of association. Additionally, it must be registered Companies House. This type of business must have at least one director and must also file its annual reports, which are submitted to the Companies House for review (Spadaccini 2007, p. 48). Public limited company, on the other hand, is a type of business formed by selling shares to members of the public. As such, membership is open to any member of the public. However, like private limited company, public limited companies are required to file audited annual report with the Company House, have no less than two directors and a qualified secretary. Main Types of Business Ownerships There are three key types of business ventures that an individual or groups of persons might form. The three include sole proprietorship, partnerships and corporations. A sole proprietorship is one of the most common forms of business ownership. Sole proprietorship is a business ownership formed and run by a single individual. However, as stated earlier, the owner might involve his or her family in the running of a sole proprietorship business. In sole proprietorship, the member is responsible for the capital, management and obligations arising from the business. Sole proprietorship is popular because of a number of advantages associated with this form of business venture. The first major advantage of sole proprietorship is that the business is simple to start because it does not require huge capital neither does it require a lot of legal requirements to start (Boone & Kurtz 2011, p. 92). Secondly, sole proprietorship is advantages because the owner becomes the boss and responsible for the day-to-day management of the business. Additionally, this form of business ownership is favored because the owner takes all the profits generated. However, sole proprietorships fall out of favor with some businesspersons because of a number of disadvantages associated with this type of business formation. The first major disadvantage associated with sole proprietorships is that the owner is responsible for all the liabilities and losses incurred by the business. For instance, a creditor might claim personal assets of the sole proprietor in case of default of debt. Secondly, forming sole proprietorships is disadvantageous because of the limited resources. Partnership is the other major form of business venture formed by two or more individuals. As earlier stated, partnership business involve pulling resources together and share management and skills to ensure business success. Once the members have come together, they are expected to sign a partnership deed that spells out how the members are supposed to share management and rights. However, partnership businesses exist in different forms, including general and limited liability partnership. General partnership is a business venture formed by two or more individuals who pull resources together and share labor and skills to a business venture (Pride, Hughes & Kapoor 2014, p. 21). Under general partnership, profits, and losses, as well as the management, are shared among partners who are also equally liable for any obligations of the partnership business. Limited partnership, however, is a type of business venture consisting of a mixture of general and limited partners. In this form of partnership, general partners share losses and profits of the company fully while limited partners share only the profits while losses are limited to the capital contributed. The last form of partnership business is the limited liability partnership (LLP) is a partnership business, where members are not liable for the negligent act of their other members, such as those of lawyers and accountants. Smith, Jones and Daniels Law Firm is a classical example of partnerships. Partnerships are favored by many business entrepreneurs because of certain advantages associated with this form of business venture. The major advantages of partnership business include the fact that it involves pulling resources and finances by different partners; involves sharing of risks and management, and does not require a lot of legal requirements to form as only the partnership deed is required. Additionally, partnerships are advantageous because it does not require special taxes. However, a partnership is disadvantageous because of unlimited liability, involves sharing of profits and is prone to disagreements among partners, resulting in business failure (Spadaccini 2007, p. 29). Corporations are the third major form of business formation. Corporations are formed by more than 20 members mainly in the form of share contribution. Corporations also have the legal entity with the powers to act in their name. Additionally, corporations also have separate legal entity from their members. Typically, corporations can be private or public limited companies. This form of business is usually complex to form as its formation requires many legal requirements to form. For instance, the formation of a corporation requires that the company be required with the Company House and requires the preparation of memorandum and articles of association (Boone & Kurtz 2011, p. 101). Additionally, corporations are required to file audited annual reports with the Company House every financial year. Examples of corporations include General Motors, Apple, and Microsoft. Forming corporations is advantageous firstly because corporations have separated legal entity from their members. Secondly, corporations are advantages because of the large source of capital for expansion. For instance, in case of public limited companies, the directors are allowed to raise capital by selling shares to the public. Secondly, corporations are advantageous because they are run by a pool of talented employees (Spadaccini 2007, p. 36). However, corporations are considered disadvantageous because of double taxation issues, difficulty in the formation because of many legal requirements, as well as the fact that corporations are not easy to terminate. Factors to Take Into Consideration When Staring a Business Because businesses are faced with a variety of risks, there are a variety of factors that an entrepreneur should consider before starting a business. The first major factor to consider is the finances. In this regard, the amount of finance that one has is a major factor because it determines the type of business to form. For instance, when an entrepreneur does not have a large financial base, then he or she may opt to start a partnership or sole proprietorship. Secondly, it is important for an entrepreneur to consider the market. The market is an important factor consider before starting a business because it determines whether or not a business would be successful. The market determines whether there would be demand for the services or products that the entrepreneur wants to introduce (Boone & Kurtz 2011, p. 32). The third important factor to consider would be the business location. In this respect, it would be critical for an entrepreneur to ensure that the business is located in an area that enjoys stable political environment. This is because the political environment has a huge impact on the success of a business. The fort factor to consider would be the legal requirements. Every business has legal requirements that must be complied with before starting a business (Spadaccini 2007, p. 41). For instance, when starting a food business, it is important to understand the legal requirements for the food business to avoid falling on the wrong side of the law. Above all, an entrepreneur should also consider the passion. Conclusion In conclusion, businesses play a critical part in the development of economies. Currently, evidence shows that most major economies are driven mainly by businesses. As such, the U.S. government has been encouraging American young entrepreneurs to consider starting their businesses as a means of spurring economic growth and development. Fortunately, there are a variety of business ventures that an entrepreneur can start, including sole proprietorships, partnerships, and corporations. Nevertheless, before starting a business, it is important for an entrepreneur to understand the requirements of these forms of business ventures, their advantages and disadvantages to ensure success. References Boone, L. E., & Kurtz, D. L. 2011, Contemporary business. John Wiley & Sons, Upper Saddle River, NJ. Pride, W., Hughes, R., & Kapoor, J 2013, Business. Cengage Learning, Mason, OH. Pride, W., Hughes, R., & Kapoor, J 2014, Foundations of business. Cengage Learning, Mason, OH. Spadaccini, M 2007, Business structures: Forming a corporation, LLC, partnership, or sole proprietorship. Entrepreneur Press, New York, NY. Read More