kinds of business ownership 111

8/3/2019 Kinds of Business Ownership 111

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Kinds of Business Ownership

ByIsaac Ikotun

Dezmond Nicolls

AbbasMohammed


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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 ofownership 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.


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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 limitedcapital resources. The sole proprietorship is the least

complicated form of ownership and the easiest to enter and

terminate.


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How to start a Sole Proprietorship Business

Starting requires little more than a Location, for example alocal 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 orbe 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 payyour creditors. All of these abilities are seldom possessed by one

person.


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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 thanthe corporate one, taxes are generally lower for the

sole proprietor.


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Disadvantages of Sole Propietorship.

As a sole proprietor1. 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 loansbecause liability insurance only protects against claims

arising from a business related injury.

4.As a Sole proprietor, your risk of lost is not shared.


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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 tothe owner.

5.pride of ownership and making key decisions.

6. lower taxes


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Partnership

In a Partnership, two or more people shareownership of a single business. The partners shouldhave a legal agreement that sets fort how decisionswill be made and how profits will be shared, howdisputes will be resolved, how future partners will

be admitted to the partnership, how partners canbe bought out, and what steps will be taken todissolve the partnership when needed. Though it'shard to think about a breakup when the business is

just getting started, but many partnerships split upat crisis times, and unless there is a defined process,

there will be even greater problems. They alsomust decide up-front how much time and capitaleach will contribute.


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Types of Partnership

1. General PartnershipPartners divide responsibility for managementand liability as well as the shares ofprofit or loss according to their internal

agreement. Equal shares are assumedunless there is a written agreement that statesdifferently.

2. Joint Venture Partnership.Acts like a general partnership, but is clearly for

a limited period of time or a single project. Ifthe partners in ajoint venture repeat the activity, they will berecognized as an ongoing partnership and willhave to file as such aswell as distribute accumulated partnership

assets upon dissolution of the entity.


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Types of Partnership

3. Limited Partnership and Partnership withlimited liability

Limited means that most of the partnershave limited liability (to the extent of theirinvestment) as well as limited input regardingmanagement decisions, whichgenerally encourages investors for short-termprojects or for investing in capital assets. Thisform of ownership is not often used foroperating retail or service businesses. Forming alimited partnership is more complex and formalthan that of a general partnership.


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Advantages of a Partnership

1. Partnerships are relatively easy to establish; however time shouldbe invested In developing the partnership agreement.

2. With more than one owner, the ability to raise funds may beincreased.

3. The profits from the business flow directly through to thepartners' personal tax returns.

4. Prospective employees may be attracted to the business if giventhe incentive to become a partner.

5. The business usually will benefit from partners who havecomplementary skills.


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Disadvantages of Partnership

1. Partners are jointly and individually liable forthe actions of the other partners.

2. Profits must be shared with others.

3.Since decisions are shared, disagreementscan occur.

4.Some employee benefits are not deductiblefrom business income on tax returns.

5. The partnership may have a limited life; itmay end upon the withdrawal or death of apartner.


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Corporation

A corporation is chartered by the state in which itis headquartered is considered by law to be aunique entity, separate and apart from those whoown it.

A corporation can be taxed, it can be sued, and itcan enter into contractual agreements. Theowners of a corporation are its shareholders. the

shareholders elect a board of directors tooversee the major policies and decisions. Thecorporation has a life of its own and does notdissolve when ownership changes.


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Advantages of a Cooperation.

1.Shareholders have limited liability for the corporation's debts orjudgments against the corporations.

2.Generally, shareholders can only be held accountable for their

investment in stock of the company. (Note however, that officerscan be held personally liable for their actions, such as the failure towithhold and payemployment taxes.)

3.Corporations can raise additional funds through the sale of stock.

5.A corporation may deduct the cost of benefits it provides toofficers and employees.

6.Can elect S corporation status if certain requirements are met.This election enables company to be taxed similar to a partnership.


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The process of incorporation requires more timeand money than other forms of organization, soits difficult to start.

Corporations have less direct control becausethey are monitored by federal, state and somelocal agencies, and as a result may havemore paperwork to comply with regulations.

Incorporating may result in higher overall taxes.Dividends paid to shareholders are not deductiblefrom business income; thus it can be taxed twice.

Disadvantages of a Cooperation.


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THANK YOU.

kinds of business ownership 111

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