Business
Major Types of Business Ownership You Should Know
There are different types of business ownership, all with different traits that make them best suited for some companies and wrong for others. Here are three types of business ownership, along with some pros and cons which will help you figure out which one best fits your ideal structure.
Sole Proprietorship
This is one of the most common types of business ownership. A sole proprietorship is a business operated and owned by an individual. It is simple and easy to start and is a good option for someone starting a low-risk business on a trial basis.
The advantage of a sole proprietorship is that all profits from the business belong exclusively to you and there is flexibility and control. As the owner, you make all the decisions and direct the entire business operations. The disadvantage is that there is unlimited liability and a limited source of financing.
Partnership
This is a business that is owned and operated by two or more people. There are two kinds of partnership: general and limited. For a general partnership, all partners have unlimited liability, while in a limited partnership, at least one partner has liability limited only to his or her investment.
The advantages of a partnership are greater availability of financing, ease of organization and teamwork. The disadvantages are the risk of disagreements, divided profits, and potentially unlimited liability.
Private Corporation
This is a business that is a legal entity created by the state whose assets and liabilities are separate from its owners. This type of business is owned by a small group of people who are typically involved in managing the business.
In order to form a corporation, one needs to develop a legal document, “Articles of Incorporation”, and submit it to the state in which the corporation plans to reside in.
The advantage is that the business has an unlimited lifespan, great sources of funding, ease of transfer of ownership and an owner can only lose up to the amount he/she invested in the business.
The disadvantage is that there is double taxation: once on profits and once on dividends.
Limited liability company (LLC)
An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.
LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won’t be at risk in case your LLC faces bankruptcy or lawsuits.
Advantages of an LLC are that it limits liability to the company owners for debts or losses while the profits of the LLC are shared by the owners without double-taxation.
Some of the disadvantages are that LLC agreements must be comprehensive and complex. Also, starting an LLC has high costs due to legal and filing fees.
By Fatiha Shabir
