There are different types of business ownership. When starting a business, deciding how you wish to operate it is critical. The business structure put in place depends on the ownership design you assume. Some business ownership structures are limiting and slow but have less interference from a third party. Other forms of business provide immense opportunities such as human capital and finances when cash flow is low.
Your business is as successful as the structure you choose. Alternatively, you can start the business as a sole proprietor and grow it into a limited liability. You can form an anonymous LLC and leverage other partners.
Common types of business ownership
- Sole proprietor
An individual operates a sole proprietorship business. Consequently, it is easy to start and run because you don’t consult anyone when making decisions. The owner raises the capital required and bears losses incurred by the firm. It is also challenging to dispose of a sole proprietor business.
Here, two or more people own and control operations in the firm. The partners run the day-to-day activities. The two owners may employ workers to help in running errands. A formal agreement between the two business partners drafts: rights, responsibilities, and shareholdings.
A partnership can be limited liability or unlimited liability. Partners in a limited liability do not bear the losses caused by the other’s decisions. Therefore, a creditor cannot seize one partner’s assets to pay for the other partner’s liabilities.
- Limited liability company
The owner’s assets are independent of the business. Therefore, the owner’s assets cannot be auctioned to offset loans and other financial obligations. Limited liability can get tax deductions for losses incurred, the shareholders are independent of business liabilities, and the model is flexible to adopt better tax models. On the flip side, a limited liability company is expensive to start and raise capital.
- Private corporation
A group of individuals can form to manage a particular type of business. In a private corporation, the partners’ assets and liabilities are independent of the individuals. The individual owners lose the sum invested if there’re losses to be shared.
Financing a private corporation is easy because the public can buy stocks from the corporation. The individuals who buy stocks are called part-owners of the corporation.
On the other hand, a private corporation has more stringent regulations than a sole proprietorship and partnership.
A co-operative business is owned by the same individuals who benefit from their investment. The individuals in a co-operative are shareholders and, therefore, involved in decision-making. A co-operative has no limit to the number of shareholders who can own the business.
The funding opportunities are diverse, ensuring continuous cash flow in the business. It also features democratic control because all partners have equal rights. On the other hand, decision-making is slow.
There are different business models. The type of business structure you chose has merits and demerits. Choose the one that suits you and appreciate the advantages and disadvantages of each.