Kinds of Business Ownership

By Isaac Ikotun Dezmond Nicolls Abbas Mohammed

Business Ownership
We will start by asking what is the best choice of type of ownership for your business? As an entrepreneur, you must decide which type of ownership is most appropriate for you. You should consider factors such as start-up costs, the amount of control you desire, the amount of personal risk you are willing to assume, and your need for assistance in business management.

Sole Proprietorship
Sole proprietorship is the most common form of business Ownership, sometimes called the individual proprietorship. This business is owned by one person. It is usually operated by the owner, possibly with the help of family members or a few employees. Sometimes the individual uses his own name in the name of the business e.g. Jack Auto Repair." However, in many cases, the sole proprietor may want to use an "assumed name" such as JK Auto Repair. Sole proprietorships can usually operate with very limited capital resources. The sole proprietorship is the least complicated form of ownership and the easiest to enter and terminate.

How to start a Sole Proprietorship Business

Starting requires little more than a Location, for example a local building firms or small shop.  A source of capital.  The ability to make contacts.  The desire to start your own business. As a sole proprietor, you must be all things to your Business or be willing to pay for professional help. You must be willing to work long hours, establish a record-keeping system, prepare tax reports, and hire and train personnel. As sole proprietor, you must arrange any financing your business needs as well as pay your creditors. All of these abilities are seldom possessed by one person. 

What about Taxes? One main advantage of a sole proprietorship is its tax advantage. Your business is not a separate tax-paying or tax-reporting unit; it is treated as part of your overall financial activities. You should keep separate records of business income, deductions, inventories, and capital acquisitions. This profit or loss is combined with other personal income for tax purposes. As the personal income tax rate is often lower than the corporate one, taxes are generally lower for the sole proprietor.

Disadvantages of Sole Propietorship. As a sole proprietor 1. Your liability is limited to your own errors and obligations. 2. But in case the business fails, your personal assets including home, automobile, and other properties are subject to claim by creditors. 3. You can deal with the problem of unlimited personal liability to a certain extent by purchasing business liability insurance. However, as a sole proprietor you would still be personally liable for any business debts or loans because liability insurance only protects against claims arising from a business related injury. 4.As a Sole proprietor, your risk of lost is not shared.

Advantages of Sole Propietorship. As a sole proprietor 1.All the decisions are made by the Owner. 2. The process of starting a sole proprietorship business is easy to set up. 3. You need to get just get a business license. 4. All the profits from the business belongs to the owner. 5.pride of ownership and making key decisions. 6. lower taxes

Partnership
In a Partnership, two or more people share ownership of a single business. The partners should have a legal agreement that sets fort how decisions will be made and how profits will be shared, how disputes will be resolved, how future partners will be admitted to the partnership, how partners can be bought out, and what steps will be taken to dissolve the partnership when needed. Though it's hard to think about a breakup when the business is just getting started, but many partnerships split up at crisis times, and unless there is a defined process, there will be even greater problems. They also must decide up-front how much time and capital each will contribute.

Types of Partnership
1. General Partnership Partners divide responsibility for management and liability as well as the shares of profit or loss according to their internal agreement. Equal shares are assumed unless there is a written agreement that states differently. 2. Joint Venture Partnership. Acts like a general partnership, but is clearly for a limited period of time or a single project. If the partners in a joint venture repeat the activity, they will be recognized as an ongoing partnership and will have to file as such as well as distribute accumulated partnership assets upon dissolution of the entity.

Types of Partnership
3. Limited Partnership and Partnership with limited liability Limited means that most of the partners have limited liability (to the extent of their investment) as well as limited input regarding management decisions, which generally encourages investors for short-term projects or for investing in capital assets. This form of ownership is not often used for operating retail or service businesses. Forming a limited partnership is more complex and formal than that of a general partnership.

Advantages of a Partnership

1. Partnerships are relatively easy to establish; however time should be invested In developing the partnership agreement. 2. With more than one owner, the ability to raise funds may be increased. 3. The profits from the business flow directly through to the partners' personal tax returns. 4. Prospective employees may be attracted to the business if given the incentive to become a partner. 5. The business usually will benefit from partners who have complementary skills.

Disadvantages of Partnership
1. Partners are jointly and individually liable for the actions of the other partners. 2. Profits must be shared with others. 3.Since decisions are shared, disagreements can occur. 4.Some employee benefits are not deductible from business income on tax returns. 5. The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Corporation
A corporation is chartered by the state in which it is headquartered is considered by law to be a unique entity, separate and apart from those who own it. A corporation can be taxed, it can be sued, and it can enter into contractual agreements. The owners of a corporation are its shareholders. the shareholders elect a board of directors to oversee the major policies and decisions. The corporation has a life of its own and does not dissolve when ownership changes.

Advantages of a Cooperation.
1.Shareholders have limited liability for the corporation's debts or judgments against the corporations. 2.Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.) 3.Corporations can raise additional funds through the sale of stock. 5.A corporation may deduct the cost of benefits it provides to officers and employees. 6.Can elect S corporation status if certain requirements are met. This election enables company to be taxed similar to a partnership.

Disadvantages of a Cooperation.

The process of incorporation requires more time and money than other forms of organization, so its difficult to start. Corporations have less direct control because they are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice.

THANK YOU.