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TYPES OF BUSINESS OWNERSHIP

The document outlines various types of business ownership, including sole proprietorships, partnerships, corporations, LLCs, cooperatives, franchises, and non-profit organizations. Each type is described with its characteristics, advantages, disadvantages, and examples. The conclusion emphasizes that the best ownership structure depends on factors like liability, taxes, funding, and goals.

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Shradhanjali Behera
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15 views

TYPES OF BUSINESS OWNERSHIP

The document outlines various types of business ownership, including sole proprietorships, partnerships, corporations, LLCs, cooperatives, franchises, and non-profit organizations. Each type is described with its characteristics, advantages, disadvantages, and examples. The conclusion emphasizes that the best ownership structure depends on factors like liability, taxes, funding, and goals.

Uploaded by

Shradhanjali Behera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BECG ASSIGNMENT

NAME- SHRADHANJALI BEHERA


ROLL- 323SM1010

TYPES OF BUSINESS OWNERSHIP


TYPES OF BUSINESS OWNERSHIP

1. Sole Proprietorship
A sole proprietorship is the simplest and most common form of business ownership, where a
single person owns and operates the business.
Characteristics:

 The owner and the business are legally the same entity.
 The owner has complete control over decision-making.
 It is easy and inexpensive to set up.
 Profits belong to the owner, but they are also responsible for all debts and liabilities.
Advantages:
 Easy to start and operate.
 Minimal regulatory requirements.
 Direct control over profits and decisions.
 Tax benefits (profits taxed as personal income).
Disadvantages:
 Unlimited personal liability—if the business incurs debts or lawsuits, the owner's
personal assets are at risk.
 Limited ability to raise capital.
 The business ceases to exist upon the owner's death or incapacity.
Examples:
 A small bakery run by one person.
 A freelance graphic designer.
 A local grocery store owned by an individual.

2. Partnership
A partnership is a business owned and managed by two or more people who agree to share
profits, losses, and responsibilities.
Types of Partnerships:
1. General Partnership (GP): All partners share equal responsibility for the business,
including liabilities and decision-making.
2. Limited Partnership (LP): Includes at least one general partner (who manages the
business and is personally liable) and one or more limited partners (who invest money
but have limited liability).
3. Limited Liability Partnership (LLP): All partners have limited liability, protecting
them from the business's debts and other partners' actions.
Characteristics:

 Formed by a legal agreement outlining profit-sharing, decision-making, and


responsibilities.
 Each partner contributes capital, skills, or labor.
 Profits are usually divided based on the agreement.
Advantages:
 Easier to raise capital compared to a sole proprietorship.
 Shared responsibility reduces the burden on individual partners.
 Tax benefits—profits are passed through to partners’ individual tax returns.
Disadvantages:

 Unlimited liability for general partners (except in LLP).


 Disagreements between partners can affect business operations.
 If a partner exits, dissolving the business may be required unless stated otherwise in
an agreement.
Examples:

 A law firm with multiple partners.


 A family-run restaurant with co-owners.
3. Corporation (Company)
A corporation is a separate legal entity from its owners, offering limited liability protection. It
is more complex and structured compared to other forms of ownership.
Types of Corporations:
 Private Limited Company (Ltd./Pvt. Ltd.): Shares are held by private individuals, and
stock is not publicly traded.
 Public Limited Company (PLC): Shares are publicly traded on stock exchanges,
making it easier to raise large amounts of capital.
 C-Corporation (C-Corp): A U.S.-based corporation that is taxed separately from its
owners.
 S-Corporation (S-Corp): A special U.S. corporation type that allows profits to pass
directly to shareholders, avoiding double taxation.
Characteristics:

 Shareholders own the company, and a board of directors manages it


 Limited liability—owners are not personally responsible for business debts.
 Can issue stock to raise funds.
Advantages:

 Limited liability for shareholders.


 Easier to raise capital through stock issuance.
 The business continues to exist even if ownership changes.
Disadvantages:
 Complex to establish and requires more regulatory compliance.
 Profits are taxed at both corporate and personal levels (except in an S-Corp).
 More expensive to form and maintain.
Examples:
 Private Limited Company: Infosys (before going public).
 Public Limited Company: Reliance Industries, Tata Motors.
 C-Corp: Amazon, Google.
4. Limited Liability Company (LLC)
A Limited Liability Company (LLC) combines elements of both a corporation and a
partnership. It offers limited liability protection while allowing flexibility in taxation and
management.
Characteristics:
 Owners (called members) have limited liability.
 It can be owned by individuals, partnerships, or corporations.
 LLCs do not issue stock but can have multiple owners.
Advantages:
 Limited liability for owners.
 Fewer regulations than corporations.
 Tax flexibility—can be taxed as a sole proprietorship, partnership, or corporation.
Disadvantages:

 More paperwork and regulations compared to sole proprietorships.


 Some states impose additional taxes on LLCs.
Examples:

 Small businesses, consulting firms, and startups that want liability protection without
forming a corporation.
5. Cooperative (Co-op)
A cooperative is a business owned and controlled by its members, who share profits and
decision-making.
Characteristics:
 Members (owners) contribute to the business and share benefits.
 Decisions are made democratically.
 Focuses on service rather than profit maximization.
Advantages:

 Equal participation and democratic decision-making.


 Shared risks and profits among members.
 Limited liability for members.
Disadvantages:
 Limited ability to raise capital compared to corporations.
 Decision-making can be slow due to collective voting.
Examples:
 Dairy cooperatives like Amul.
 Credit unions.
6. Franchise
A franchise is a business model where an individual (franchisee) operates a business under an
established brand (franchisor).
Characteristics:
 The franchisee pays an initial fee and ongoing royalties to the franchisor.
 The franchisor provides branding, training, and operational support.
 The franchisee must follow specific guidelines and standards.
Advantages:

 Lower risk due to an established brand.


 Franchisor provides marketing and operational support.
 Easier access to financing.
Disadvantages:
 Franchise fees and ongoing costs can be high.
 Less control over business operations.
Examples:
 McDonald’s, KFC, Domino’s, Subway.
7. Non-Profit Organization (NPO)
A non-profit organization operates for a social, charitable, educational, or religious purpose
rather than making a profit.
Characteristics:
 Profits are reinvested into the organization’s mission.
 Can be tax-exempt if registered properly.
 Managed by a board of directors or trustees.
Advantages:
 Eligible for tax-exempt status.
 Can receive donations and grants.
 Serves a social or public cause.
Disadvantages:

 Heavily regulated.
 Cannot distribute profits to owners.
Examples:

 Red Cross, UNICEF, NGOs.

Conclusion
Each type of business ownership has its pros and cons. The best choice depends on factors
like liability concerns, tax considerations, funding needs, and long-term goals. Would you
like guidance on selecting the best structure for a specific business idea?

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