10 COMMON TYPES OF BUSINESS OWNERSHIP

Here are 10 forms of business ownership and their main advantages and disadvantages:

1. Sole proprietorship

A sole proprietorship is owned and operated by one individual. The owner of a sole proprietorship doesn't need
the approval of a board or partner to make daily business decisions. They also get to keep and determine what
to do with the business' profits.

Here are the advantages and disadvantages of a sole proprietorship:

Advantages

 They're simpler to form than other businesses because it doesn't require a lot of paperwork.
 The owner has sole control of all processes and decision-making.
 Filing taxes for this type of business is easier than for other types of businesses.

Disadvantages

 The owner accepts all responsibility for business losses.

 The owner is responsible for raising capital for startup costs.
 It may be harder to sell the business.

2. Partnership

A partnership is a form of ownership that involves two or more owners controlling a business. The joint owners
may run the day-to-day activities by themselves or through appointed representatives. In a partnership, the
owners sign a formal agreement that clearly states a partner's rights, shares and responsibilities.

Business leaders typically divide partnerships into limited liability partnerships and unlimited liability partnerships.
Here's how these types of partnerships work:

Limited liability partnership

- In a limited liability partnership, individual partners don't accept losses caused by another, meaning no
legal entity can seize or sell one partner's possessions to pay for the other partner's debts.

Unlimited liability partnership

- In an unlimited liability partnership, both partners are responsible for the business. If one partner is
directly responsible for a loss, all other partners pay for the debt, even if they aren't directly responsible
for the losses.

Here are the advantages and disadvantages of partnerships:

Advantages

 They provide the potential to gain wider access to knowledge and expertise from partners.
 The infusion of capital is easier than it is in other business structures.
 This business type offers the ability to share the burden of startup costs and capital expenditure.
 The division of labor among partners creates a better work-life balance.

Disadvantages

 Partners carry the burden of liabilities, regardless of the partner who is responsible for the debt.
 There's a potential loss of autonomy as all partners deliberate on key decisions.
 There can be more potential for conflict between partners.
 Selling complications can arise if one partner disagrees with the plan to sell the business.

3. Limited liability company

- In a limited liability company, the owner's assets, like their car, house and personal accounts, have
protection if their business goes bankrupt. This ownership option is a good choice for small business
owners looking to start a new business. Here are some advantages and disadvantages of a limited
liability company:

Advantages

 Flexibility to adopt different tax structures

 Potential to earn tax deductions for business losses
 Responsibility for business liabilities doesn't belong to shareholders
 Ability to restructure without seeking regulatory approval
Disadvantages

 It can be challenging to raise capital for this type of business.

 This can be more expensive to form than other structures.
 The salary and profits are often subject to self-employment taxes.

4. Private corporation

- A private corporation involves individuals forming a group to manage a business. This kind of ownership
separates assets and liabilities from the owners. In case of loss, the owners only lose the amount they
invested. Those starting a corporation submit a document called the articles of incorporation in the
state where their business is located.
- Private corporations allow individuals to buy stock from the corporation, giving the business more
capital to grow the business or invest in better technology or tools. Individuals who buy stock become
part-owners of the corporation. Some advantages and disadvantages of a private corporation include:

Advantages

 No obligation to reveal financial results to the public

 Limited or no shareholder pressure for short-term results
 Limited liability exposure for owners

Disadvantages

 Restricted access to capital markets

 More stringent regulations than a partnership or sole proprietorship
 Potential for higher administrative costs
 Less control of the business with more shareholders

5. Cooperative

- A cooperative is an enterprise that is privately owned by the same people who benefit from it. The
owners of a cooperative, who are also the shareholders, are involved in the decision-making process.
There is no limit to the number of shareholders in a cooperative, which means there is no limit to the
number of owners.
- Owners receive a share of the profits from the cooperative's investments, depending on their
shareholdings. The owners of a cooperative elect a board who manages the business. Here are some
advantages and disadvantages of a cooperative:

Advantages

 Grants equal rights to members during the decision-making process

 Brings members together for a common cause
 Provides access to diverse and unique funding opportunities

Disadvantages

 Fewer incentives for angel investors and venture capitalists

 Slower decision-making among owners

6. Nonprofit corporation

- A nonprofit corporation operates to benefit a community or providing a social service. For someone to
operate this form of ownership, they're required to prove to a government entity that their services
benefit society. These corporations are typically charitable organizations in the fields of science, criminal
justice, education and humanitarian affairs.
- Nonprofit organizations that choose to incorporate and file a certificate of formation with their
Secretary of State's Office become nonprofit corporations. Many, but not all, nonprofit organizations
choose to incorporate to take advantage of the many available benefits. Here are some advantages
and disadvantages of becoming a nonprofit corporation:

Advantages

 There is limited liability protection for owners' assets.

 You are eligible for tax exemption.
 You are eligible to receive grants.
 You have diverse fundraising opportunities.
 Donations are tax-exempt.

Disadvantages

 There are high startup costs.

  The approval of tax exemption status may take a long time.
 You are not always eligible for tax exemption.
 There might be excessive public scrutiny of how you use funds and donations.

7. Benefit corporation

- Sometimes called B corps, benefit corporations aim to benefit the public while also making a profit.
Certified B corporations are benefit corporations that have received a third-party certification from the
nonprofit B Lab. Certified B corps must achieve a minimum verified score on the B Impact Assessment
and are required to gain recertification every three years.
- Both benefit corporations and certified B corps are legally required to consider the impact of their
decisions on their workers, customers, suppliers, community and the environment. Most government
entities require B corporations to submit regular reports that indicate the public benefit stemming from
their business. Some advantages and disadvantages of a B corporation and a certified B corps include:

Advantages

 It allows instant networking with like-minded corporations.

 It may benefit from tax exemptions.
 It attracts investors seeking to make a social impact.

Disadvantages

 There are more expansive reporting requirements for both B corps and certified B corps.
 There are stringent standards to maintain status as a certified B corps.
 The B Lab certification fees range from $500 to $50,000 per year.

8. Close corporation

- A close corporation, also known as a privately held company, private company or family corporation, is
a business whose ownership consists of a limited number of shareholders who have close associations
with the business. Owners of this type of business can't offer it for public trading, which means if
someone wants to sell their shares, they can only sell them to co-owners.

Here are a few advantages and disadvantages of a close corporation:

Advantages

 There are fewer formalities besides filing incorporation documents.

 There is greater control in the daily running of the business.
 There are strong liability protection options for personal assets.
 There is freedom in financial structuring.
 There is no outside pressure for performance from public shareholders.

Disadvantages

 Exit options may have limitations.

 Some jurisdictions may not recognize close corporations.
 Shareholders may have increased responsibilities.
 You may not make a public offering of stock.

Stock Corporations

- In a stock corporation, shareholders contribute capital to the company and are awarded shares, which
are represented by certificates. These shares may allow them to receive a return on their investment
through future dividends. The shares also give them voting rights on matters related to corporate policy,
hiring directors, or other important decisions made during the corporation's annual meeting
- Since stock shares are divided up among the investing shareholders, ownership of the company is
readily determined because the shares are considered transferable property. If a stockholder owns
more than 50 percent of a corporation's shares, they have a controlling interest in the company
because they own more than all other shareholders combined.

Owning stock shares in a corporation entitles a shareholder to certain rights, including:

 The right to make decisions

 The right to elect board members
 The right to receive dividends

For the company, selling stock means having income for the corporation. The company can use this income to
finance startup costs, operations, and future growth.
Essentially, selling stocks is likened to the board of directors trading some of its decision-making power for
financial benefit. It's important to note that only for-profit corporations sell stocks; non-profit corporations may
have memberships instead of stock.

What are Stocks?

- A stock represents a claim on a company's earnings and assets, which makes it a share of ownership in
a company. As you obtain more stock in one particular company, your ownership stake increases. This is
the most basic definition, however, as there's a lot more to understand about stocks than meets the
eye.
- For starters, shareholders don't actually own the corporation; they merely own shares. Corporations are
treated like legal individuals because they're a special type of organization, meaning that corporations
can own property, file their own taxes, borrow money, and be sued.
- Since a corporation is considered a legal “person,” it can own assets, but its corporate property is
legally separate from the shareholders. This distinction limits the liability of both the shareholder and the
corporation. For example, if a company files for bankruptcy, a shareholder's personal assets are not at
risk. You aren't even forced to sell your shares, but the value of those shares will likely fall dramatically.
- In other words, if you own 33 percent of a company's shares, you can't claim to own one-third of the
company itself. Instead, you own 100 percent of one-third of that company's shares.
- For most shareholders, not having any management say in the company isn't a problem. The key
benefit of owning stock is being entitled to a portion of that corporation's profits.