CHAPTER 4
FORMS OF BUSINESS OWNERSHIP
INTRODUCTION
-THE FORM OF BUSINESS OWNERSHIP TO ADOPTS IS A STRATEGIC DECISION THAT MUST BE
CONSIDERED AT THE START
SOLE PROPRIETORSHIP
*A FORM OF BUSINESS OWNERSHIP OWNED BY ONE PERSON. THE OWNER PERSONALLY MANAGES
HIS/HER BUSINESS.
IT IS THE EASIEST, SIMPLEST AND MOST NIMEROUS FORM OF BUSINESS
*THE OWNER MAKES ALL THE IMPORTANT DECISIONS AND IS GENERALLY RESPONSIBLE FOR ALL
DAY-TO-DAY ACTIVITIES
*THE BIG PERCENTAGE OF BUSINES OWNED BY SOLE PROPRIETORS INDICATES THE POPULARITY
OF THIS OWNERSHIP TYPE.
ADVANTAGES OF SOLE PROPRIETORSHIP
1.EASE
*EASIEST AND LEST COSTLY TO ORGANIZE
*THE ONLY BASICS FOR ITS LEGAL EXISTENCE ARE THE FOLLOWING
A.THE SOLE OWNER'S RESOLVE TO START OPERATING AND
B. GETTING THE REQUIRED PERMITS AND LICENSES.
2.SECRECY
*KNOWING THE MOVES, AS WELL AS THE STRENGTHS AND WEAKNESSES OF COMPETITORS.
3.DISTRIBUTION AND USE OF PROFITS
*THE SOLE PROPRIETOR IS THE SOLE BENEFICIARY, THE OWNER RECEIVES 100% OF THE
REVENUES BECAUSE THERE IS NO LEGAL DISTINCTION BETWEEN THE BUSINESS AND THE OWNER.
4.CONTROL OF THE BUSINESS
*THE OWNER IS ALSO VESTED WITH THE POWER TO SOLELY THE BUSINESS AND SOLE AUTHORITY
IS VERY IMPORTANT ESPECIALLY UNDER CRITICAL COMPETITIVE SITUATIONS.
*GIVEN THAT THE SUCCESS OF THE BUSINESS ALSO EQUALS PERSONAL SUCCESS, MANY
ENTREPRENEURS FIND THIS LEVEL OF FREEDOM APPEALING.
5.GOVERNMENT REGULATION
*SOLE PROPRIETORSHIPS ARE REQUIRED BY THE GOVERNMENT TO SUBMIT FEWER REPORTS
*THE BUSINESS INCOME AND OTHER PERSONAL NET REVENUES FOR SOLE OWNERS MUST BE
REPORTED, FILED, AND TAXED PROPERLY.
6.TAXATION
*THE NET INCOME OF THE SOLE PROPRIETORSHIP IS TREATED AS THE PERSONAL INCOME OF THE
SOLE OWNER AND IS TAXED ACCORDINGLY. PASS-THROUGH BUSINESS INCOME IS ONLY SUBJECT
TO ONE LEVEL OF INCOME TAX.
7. CLOSING THE BUSINESS
SOLE PROPRIETORSHIPS CAN BE DISSOLVED BY THE OWNERS AT WILL. ALTHOUGH THIS IS NOT
ALWAYS EXERCISED, IT REMAINS AN OPTION OF THE OWNERS. IF THE BUSINESS CONDITIONS
HAD BECOME UNPROFITABLE,
THE SOLE PROPRIETOR HAS THE ADVANTAGE OF IMMIDIEATE CESSATION OF OPERATIONS.
DISACVANTAGES OF SOLE PROPRIETORSHIP
1. OWNER'S LACK OF ABILITY AND EXPERIENCE - THE SUCCESS OF THE SOLE PROPERIETORSHIP
WILL DEPEND LARGELY ON THE MANAGEMENT SKILLS OF THE OWNER.
2.DIFFICULTY IN ATTRACTING GOOD EMPLOYEES - GOOD EMPLOYEES TEND TO GET EMPLOYMENT
IN A MORE STABLE ENTERPRISE, WHICH IS MOST OFTEN CORORATION.
3.DIFFICULTY OF RAISING CAPITAL - RAISING CAPITAL WILL DEPEND ON THE FINANCIAL
RESPURCE OF THE SOLE OWNER.
4.LIMITED LIFE OF THE FIRM - THE EXISTENCE OF THE SOLE PROPRIETORSHIP DEPEDNS ON
THE PHYSICAL WELL-BEING OF THE OWNER
5.UNLIMITED LIABILITY OF THE PROPRIETOR - IT IS THE GREATEST DISADVANTAGE OF THE
SOLE PROPRIETORSHIP.
ANY LIABILITY INCURRED BY THE SOLE PROPRIETORSHIP EXTENDS TO THE OWNER'S PERSONAL
ASSETS
PARTNERSHIP
A PARTNERSHIP IS
ADVANTAGES OF PARTNERSHIPS
1. EASE OF FORMATION - LIKE SOLE PROP PARTNERSHIPS ARE EASY TO FORM
2.POOLING OF KNOWLEDGE AND SKILLS
3. MORE FUNDS AVAILABLE
4. ABILITY TO ATTRACT AND RETAINING EMPLOYEES
5.TAX ADVANTAGE - THE INCOME OF THE PARTNERSHIP IS NOT TAXED SEPARATELY FROM
PARTNER'S INCOME
DISADVANTAGE OF PARTNERSHIPS
1.UNLIMITED LIABILITY - INVOLVES GENERAL PARTNERS AND SOLE
2.LIMITED LIFE - THE PARTNERSHIP IS DISSOLVED WHEN A PARTNER PASSES AWAY
3.POTENTIAL CONFLICT BETWEEN PARTS- DISAGREEMENTS IN THE COMPANU ABOUT HOW
RESOURCES SHOULD BE USED
4. DIFFICULTY IN DISSOLVING THE BUSINESS - THIS MEANS THAT IF PARTNERS
TYPES OF PARTNERSHIPS
-GENERAL PARTNERSHIPS - 2 OR MORE
-LIMITED PARTNERSHIPS - FAMILY LIMITED PARTNERSHIP
CORPORATION
A CORPORATION IS A BUSINESS ENTITY WHOSE SHAREHOLDERS ELECT A BOARD OF DIRECTORS TO
OVERSEE THE ORGANIZATION'S OPERATIONS. CORPORATIONS CAN BE FOR-PROFIT LIKE
BUSINESSES OR NON PROFIT LIKE CHARITABLE ORGANIZATIONS.
ADVANTAGES OF CORPORATION
1. LIMITED LIABILITY
-AS A RESULT OWNERS ARE RARELY HELD PERSONALLY LIABLE FOR THE COMPANY'S DEBT
2. EASE OF EXPANSION
-THE ADVANTAGES OF FORMING A CORPORATION INCLIDE GREATER CAPACITY TO RAISE CAPITAL
THROUGH LEGAL STOCK SALES AND GOVERNMENT REGULATION.
3. EASE OF TRANSFERRING OWNERSHIP
-IT IS SIMPLE TO TRANSFER OWNERSHIP OF A CORPORATION, SHAREHOLDERS SIMPLE SELL
THEIR STOCK TO OTHERS.
4. RELATIVELY LONG LIFE
