Types of Business Ownership

The Right Fit

Sole ProprietorshipBusiness owned and operated by one person

ADVANTAGES

decisions are made by only the owner

total control of all business processes

simple process to start – just get a business license

profits belong to the owner

pride of ownership

DISADVANTAGES

unlimited liability• personal assets at risk

limited life of business• when the owner quits or can’t

work, the business ends

difficult to raise capital for business

owner must shoulder all losses alone

Partnership Business owned and operated by two or more people

ADVANTAGES

easy to start same as sole

proprietorship except with partnership agreement - individual responsibilities and benefits

few regulations

easier to raise capital for business than sole proprietorship

combination of partners’ knowledge and skills can strengthen business

DISADVANTAGES

unlimited liability• personal assets at risk

limited life of the business• when one partner quits or can’t

work, the business partnership is dissolved

profits are shared among partners

disagreements between partners

CorporationBusiness owned by stockholders/investors; operated by officers

ADVANTAGES

easy to raise capital• corporations can issue stock,

bonds, receive bank loans easier

limited liability• corporation is viewed legally as its

own ‘person’ and so shareholders are not liable for its debt

unlimited life of business• death of an owner only means

change in ownership

able to hire specialized skills and knowledge

DISADVANTAGES

• difficult to start• to incorporate, a business must

meet many government requirements

• less direct control by individual shareholders

• individual shareholders rarely own a high enough percentage of shares to have substantial decision-making power

• limited activity• corporations are only able to

engage in areas of business for which they have a license

Limited Liability

It all comes down to the responsibility for the debts of the business:

A sole proprietor or partnership can be held responsible for all the debts of the firm

The owners of corporations can only be held responsible up to the value of their investment in the business

Investing in a Business

Sole proprietors must raise all the finances to set up and run the business themselves

Partners can all contribute to the financing of a firm

Corporations can sell shares of the company to family, friends and associates OR

Corporations can raise finances by selling shares on the stock market

Legal Responsibility

Sole proprietors have no legal formalities to go through, apart from registering with the government

Partnerships also have no legal formalities but may choose (should choose) to sign a Deed of Partnership

Companies have to go through a series of legal formalities

Franchises

Individual business people buy a business model from a corporation

A certain percentage of revenues/profits goes back to the corporation

Franchises must adhere to corporate regulations

Franchises have a higher percentage of success than other businesses – due to support from corporation e.g.: McDonalds, Tim Hortons, Sports Check