Introduction

The initial choice that a business owner will have to make is how to structure their business. It is
important to understand the pros and cons of various forms of business organization in order to make
the correct decision for the new business. Every business must adopt a legal configuration that
outlines the rights and responsibilities of those involved in the ownership, control, personal liability,
lifespan, and financial structure of the business. The chosen form of business also determines which
tax return form needs to be filed and establishes the legal liabilities of both the company and its
owner.

. Fig: Types of Ownership

1) SOLE PROPRIETORSHIP
Most sole proprietorships are small businesses owned by individuals. An individual who starts a
business is called an entrepreneur. The term "sole" refers to being single or one. The term
"proprietor" means owner. Therefore, a sole proprietorship is a business that is owned by one person.
It is the oldest and most common form of business ownership, with approximately 75 percent of all
businesses in the United States organized as sole proprietorships. The majority of small businesses
initially start as sole proprietorships. These businesses are typically owned by one person who is
responsible for the day-to-day operations. Sole proprietors can be independent contractors,
freelancers, or home-based businesses.

Advantages:
1. The owner gets all the profits.
2. Profits are taxed only once.
3. The owner makes all the decisions and has full control over the company (but this may also be...
defect).
4. It is the easiest and least expensive form of ownership to organize.
5. They are easy to form, and the owners have sole control over the profits of the business.

Disadvantages:
1. There is unlimited liability if anything happens at work. Your personal assets are at risk
(Including your home in Kansas City).
2. It is limited to raising funds and the owner may have to obtain consumer loans.
3. There is no separate legal status.
4. Unlimited liability means when someone in the business pays debts by selling assets
At work.

Example:
• Art studio,

• A local grocery,
• IT consultation service
2)CORPORATION
A corporation is legally recognized as a separate entity from its owners, with the ability to be taxed,
sued, and make contractual agreements. It has its own existence and does not cease to exist when
ownership changes. A corporation is a business that is granted legal status with distinct rights,
privileges, and liabilities separate from its employees. Corporations can vary in size, from a one-
person business to a multinational operating in multiple countries. Publicly owned portions of a
corporation are referred to as stocks or shares. Individuals who own these shares are known as
shareholders and become owners of the business.

There are three types of corporations:

1. C-corporation,
2. S-corporation
3. Limited Liability Company

1. C-corporation:
A C-corporation, which is taxed separately from its owners, offers limited liability to its owners,
thereby promoting increased risk-taking and potential investment.

Advantages:
- It is limited liability.
- In regards to transfer of ownership, shareholders can sell their shares.
- The company pays fringe benefits.

Disadvantages:
- It is subject to double taxation. (Corporation and shareholder earnings are taxed.)
- It can be costly to form.
- C-corps pay corporate taxes at a different time than other forms of investment
-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.
2. S-Corporation

An S-corporation, which is also referred to as a subchapter S-corporation, provides limited liability

to its owners. These corporations are exempt from income taxes, and instead, the profits and earnings
are considered as distributions. Shareholders are required to report their income on their personal
income tax returns.

Advantages:
- It enjoys limited liability.
- It avoids double taxation.
- It offers transfer of ownership.

Disadvantages:
- It can be costly to form.
- Stockholders are limited to individuals, estates or trustees.
- Stockholders are limited to citizens or resident aliens of the United States.

3. Limited Liability Company:

An LLC, or limited liability company, is a business structure that combines the limited legal liability
of a corporation with the operational flexibility of a partnership or sole proprietorship. However, the
process of establishing an LLC is more intricate and formal compared to that of a general
partnership.

Advantages:
- It is the most common business structure and is specifically created for small businesses..
- LLCs are usually taxed as a sole proprietorship.
- LLCs can have an unlimited number of owners.
Disadvantages:
- It requires yearly administrative costs.
- LLCs have a personal tax liability.
- Legal and accounting assistance is recommended for LLCs.
3) PARTNERSHIP

Partnership is a form of business ownership where two or more people share ownership. Similar to
proprietorships, the law treats the business and its owners as one entity. To ensure smooth
operations, partners should have a legal agreement that outlines decision-making processes, profit
sharing, dispute resolution, admission of new partners, buyout procedures, and dissolution of the
partnership if necessary. Partnerships involve complex negotiations and unique challenges that
require careful consideration and agreement. Various factors such as overarching goals, give-and-
take dynamics, responsibilities, authority, succession plans, evaluation and distribution of success,
among others, must all be carefully negotiated. Once an agreement is reached, it can be legally
enforced under civil law, especially if well-documented. To make their agreement enforceable,
partners often create Articles of Partnership. Trust and pragmatism are also crucial as not everything
can be stated in the initial agreement, emphasizing the importance of effective governance and clear
communication for long-term success. It is common for information about formal partnerships to be
made public through press releases, newspaper ads, or public record laws.

Advantages:
- It is easy to establish (with the exception of developing a partnership agreement).
- Separate legal status gives liability protection.
- Profits are taxed only once.
- Partners may have complementary skills.

Disadvantages:
- Partners are jointly and individually liable for other partners’ actions.
- Profits must be shared with the partners.
- Decision making is divided.
- Business can suffer if the detailed partnership agreement is not in place.
4) CO-OPERATIVES
A cooperative is a privately-owned business that is controlled by the individuals who use its
products, supplies, or services. While cooperatives can differ in terms of their type and the size of
their membership, they are all established to meet the specific goals of their members and are
designed to adapt to their changing needs. Typically, a cooperative only allows a limited distribution
of profits to its members, with some cooperatives not allowing any distribution at all. This business
structure promotes a democratic management style and encourages the sharing of resources and
delegation to enhance competitiveness. A cooperative is a business that is owned and operated by the
workers or members who purchase its products or utilize its services. The primary focus of this type
of business is on providing service rather than making a profit. Similar variations of this business
model include consumer, retail, and worker cooperatives.

Advantages:

- Generally inexpensive to register.

- All members must be active in the co-operative.
- Members have an equal vote at general meetings regardless of their level of investment or
involvement.
- Than directors, members can be aged less than 18 years. These members cannot stand for office
and don’t have voting rights.

Disadvantages:
- As co-operatives are formed to provide a service to members rather than a return on investment, it
may be difficult to attract potential members seeking a financial return.
- There is usually limited distribution of profits to members and some co-operatives may prohibit the
of distribution of any surplus.
- Members providing greater involvement or investment than others will still only get one vote,
- Requires on-going education programs for members.

-members have equal voting rights regardless of investment - which may not suit an investor-driven
business
-legal limits on payments of dividends on shares may not suit an investor-driven business
Reference
https://www.indeed.com/career-advice/career-development/business-owner-types

https://www.business.tas.gov.au/managing/tax/choosing_a_business_structure/co-
operative_-_advantages_and_disadvantages

textbook/manual :Management (22509)

Conclusion
Ownership is a socially significant concept because it is an index of wealth, and social position.
Ownership of land was the means of controlling government. In a feudal system based on land
ownership, the feudal lords wielded tremendous influence, and even the qualification to vote was
based on ownership of land. The social aspect of ownership also highlights the important principle
that on owner shall enjoy his interest in a manner compatible with the interest of others.