Business Organizations: Types of Ownership

Business Organizations
Types of Ownership
Types of Organizations
1. Sole proprietorships;
2. Partnerships;
3. Corporations; and
4. Co-operatives.
Sole proprietorships
This is the simplest way to set up a
business.
A sole proprietor is fully responsible for all
debts and obligations related to his or her
business.
A creditor with a claim against a sole
proprietor has a right against all of his or her
assets, whether business or personal. This is
known as unlimited liability.
Sole proprietorships
Advantages Disadvantages
relatively low start-up unlimited liability
costs
greatest freedom from lack of continuity in business
regulation organization in absence of
owner
owner in direct control of difficulty raising capital
decision making
minimal working capital
required
tax advantages to owner
all profits to owner
Partnerships
A partnership is an agreement in which two or more
persons combine their resources in a business.
General Partnership
All members share the management of the business and each
is personally liable for all the debts and obligations of the
business.
Limited Partnership
Some members are general partners who control and
manage the business and may be entitled to a greater share
of the profits, while other partners are limited and contribute
only capital.
Partnerships
ease of formation unlimited liability
relatively low start-up costs lack of continuity
additional sources of divided authority

investment capital
possible tax advantages difficulty raising additional
capital
limited regulation hard to find suitable partners
broader management base possible development of

conflict between partners
Corporations
A corporation is a legal entity that is separate

from its owners, the shareholders.
No shareholder of a corporation is personally
liable for the debts, obligations or acts of the
corporation.
A corporation is identified by the terms "Limited",
"Ltd.", "Incorporated", "Inc.", "Corporation", or
"Corp."
Corporation
Private Corporation
A private corporation can be formed by one or
more people. A majority of its directors must be
Indian residents. A private corporation cannot sell
shares or securities to the general public.
Public Corporation
A "public corporation" is one that issues securities
for public distribution. Besides filing incorporation
documents, a public corporation must file a
prospectus with the appropriate
Private Limited Company
A private company is a company which has

the following characteristics:
• shareholders’ right to transfer shares is
restricted;
• the number of shareholders is limited to
fifty; and
• an invitation to the public to subscribe to
any shares or debentures is prohibited.
Public Limited Company
The following conditions apply only to a public company:
It must have at least seven shareholders.
Not authorized to start business upon the grant of the
certificate of incorporation. In order to be eligible to
commence business as a corporation, it must obtain
another document called "trading certificate".
It must publish a prospectus or file a statement in lieu of a
prospectus before it can start transacting business.
A public company is required to have at least three
directors.
It must hold statutory meetings and obtain government
approval for the appointment of the management.
There are several other provisions contained in the
Companies Act 1956 which are applicable only to public
companies and should be consulted
Corporation
limited liability closely regulated
specialized management most expensive form to organize
ownership is transferable charter restrictions
continuous existence extensive record keeping
necessary
separate legal entity double taxation of dividends
possible tax advantage possible development of conflict
between shareholders and
executives
easier to raise capital
Co-operatives
A co-operative is a corporation organized and
controlled by its members, who pool resources to
provide themselves and their patrons with goods,
services, or other benefits. A cooperative business
structure provides:
- democratic control based on one member one

vote;
- open and voluntary membership;
- patronage dividends.
Co-operatives
owned and controlled by members possibility development
of conflict between
members
democratic control (i.e. one member, one longer decision-making
vote) process
limited liability participation of
members required
for success
profit distribution (surplus earnings) to extensive record
members in proportion to use of service; keeping necessary
surplus may be allocated in shares or cash
less incentive to invest
additional capital

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Business Organizations

ease of formation unlimited liability

relatively low start-up costs lack of continuity

additional sources of divided authority

broader management base possible development of

A corporation is a legal entity that is separate

A private company is a company which has

- democratic control based on one member one

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