The form of business ownership basically refers to the structure of business adopted by an organization. There are various forms of ownership available; selecting a particular form of ownership will depend on several factors. Sole proprietorship and partnership are the most basic forms of ownership. Some of the other types of business ownership include limited partnership, Limited Liability Company, corporation and cooperative ownership. There is no one-size-fits-all solution as far as selecting a business ownership is concerned.
The nature of business, initial investment, tax deductions, risks involved and anticipated growth are among the primary factors influencing this decision. Sole proprietorship is very common since it requires only a small investment, thus making it ideal for upcoming entrepreneurs. However, it does have its own disadvantage, since the entire liability of the organization is on the proprietor’s shoulders. This includes legal as well as financial liabilities.
A partnership and sole proprietorship are very similar to each other, except for the fact that a partnership involves more than one person. A limited partnership involves a general partner and one or more limited partners. The role of a limited partner will be limited to making financial investments. The general partner is the decision-maker in this relationship, thereby freeing the limited partner from all liabilities. On the other hand, for an entrepreneur whose business runs the risk of getting sued, it would be better to opt for corporation or a Limited Liability Company (LLC).
A corporation can be either a for-profit or a not-for-profit corporation. A corporation is an entity that represents itself; the owner of such an organization will not assume complete liability and tax burdens. However, in a Limited liability company, proprietor pays a part of his income as taxes on behalf of the company (“Corporations and LLCs”). Both an LLC as well as a corporation are much more complicated to start up, compared to a sole proprietorship or partnership.