5 Different Types of Business Ownership for Entrepreneurs
Years ago, you could have a business name, open a store, and sell fruits and vegetables. Today, business ownership is a lot more complicated than that. In fact, in today’s world, you need licenses, permits, business numbers, tax filing codes, copies of applications, documents, and so much more. It never ends. In the end, this work is worth it because now you’re your own boss and you can achieve your entrepreneurial dreams.
Have you contracted the entrepreneurial bug? Or, do you naturally have the entrepreneurial spirit? Either way, if you feel the need to be a business owner, and have the will to achieve corporate success, then perhaps it is time to open your business and start selling whatever good or service you have in mind. Just be sure you’re adequate prepared to grapple with customers, inventories, IT, and market conditions. That’s just a tip of the iceberg.
As an aspiring entrepreneur, you should get acquainted with the intricacies of business, including the different types of ownership. Here are five types of business ownership:
1. Sole proprietorship
The sole proprietorship is among the most common types of business ownership, especially for startups and newcomers. The owner maintains sole control of the company, and opening the private enterprise is simple, easy, and inexpensive. Even at tax time, it is a lot simpler to file your business taxes if you are the primary owner rather than if you partnered with multiple individuals.
Unfortunately, you just need to ensure you’re doing everything by the book, otherwise, you might be held personally liable for any wrongdoing or transgression.
If you are an entrepreneur interested in business ownership, you should begin by registering your sole proprietorship. This can be a long, arduous, and drawn out process. Or, it can be short and sweet, depending on the kind of company you are registering. Here are the three simple tasks that can be done at city hall:
- Name Your Business: The first step is to name your business. The name is imperative because it needs to be easy to remember and catchy, while describing the goods and services you provide. You must also not use the name of another business, such as Apple, Amazon, or Applebees.
- Get Your Business Number: A business number is critical when registering your company. A business number not only identifies your company by the government, but it will also be used to pay your taxes.
- Apply for Permits and Licenses: Depending on the kind of business you own and operate, you may not need to apply for permits and licenses or you might need to apply for quite a bit. The important thing to remember is to actually submit applications for these permits and licenses.
Whether you can’t do it alone or you and somebody have come up with an excellent idea, a partnership may be the best route to take. These types of business ownership represent a 50-50 split, right down the middle. You and your partner will share the risk, share managing duties, and share tax reporting.
However, if there is a dispute between you and your partner, then it might impact the business in some way. But, at the very least, you can share debt obligations or and responsibilities in the event of a lawsuit. Just be worried about buyouts if the other person wishes to quit the business or retire – this can be incredibly expensive.
Are you incorporating your business? Well, this is a sign that your company is doing rather well, so congratulations are in order. Like the other types of business ownership, there are pros and cons, advantages and disadvantages.
Let’s take a look at some of these:
- Owners are not responsible for debts or obligations.
- Business income is paid out in the form of salaries or dividends.
- It is easier to raise capital if you are incorporated.
- The downfall is the complicated red tape and the expense to establish your company.
Again, your business must be immense if you have submitted an application for incorporation! You should most likely consult with a team of business lawyers before you turn your business establishment into a corporation.
A cooperative is likely the least effective type of ownership there is in the private economy.
Businesses identified as a cooperative are owned, controlled and sometimes operated by its members. This can be a good thing or a bad thing, depending on your business model and overall performance. Indeed, cooperatives might be slow to make decisions or minimize risks of conflict between members.
It is harder to profit off of a cooperative, so this might not be the best decision for your enterprise.
5. Limited Liability (LL)
Limited liability is an entity whose corporate loss will not surpass the amount invested in a limited liability company (LLC) or a partnership. Put simply, the owners’ private assets, as well as investors’, will not be at risk of the firm fails.