Are you starting a new business? Have you really thought how are you going to manage it? I mean are you going to look after everything on your own or rely on others’ as well. If you have not given much importance to this aspect, then probably, today’s post is for you. Today, I am going to discuss, the types of business and ownership through which you can start a business. Just to clarify, the type of businesses and ownership that you would choose is dependent on your will and the investment opportunities that you have. However, once you chose a particular type of ownership, you will have to adjust with all the pros and cons it brings with it.

Four Main types of businesses and ownership:

Let’s give each of the business types a closer look along with the discussion of the pros and cons that it brings with it. Each of the business forms can impact management and financing opportunities.

1. Sole Proprietorship:

The easiest and the simplest form of business is the sole proprietorship. In such a business, you are the sole owner of your business. You need neither to share your profits nor get suggestions or recommendations for running your business. The formation and running of this type of business are also quite easy because you only need to think of a productive idea, make investment and start the formal execution of the business. Got it? Then, let’s proceed with the advantages and disadvantages associated with it.

Advantages and Disadvantages:

The ease of formation and running is the biggest advantage that you can here. Moreover, you can make all the decisions on your own and get all the profit for yourself without sharing it with the others. Even the control and flexibility associated with the sole proprietor type of business is enough to tempt you to go for this business type. However, there are certain drawbacks of using this form of business as well. These include lesser financing options and you being the jack-of-all-trades. Being a single owner, your credit rating would be lower, thus getting significant investment won’t be possible. Similarly, you’ll have to manage everything including the marketing and finance division, which would get extremely difficult.

2. Partnership:

The second type of business is the partnership business. In this type of business, there are more than one individual, mostly 2-8 individuals. The investment is made by each of the partners and the profit/loss sharing ratio is kept accordingly. For example, if you are starting a business with one of your friends on 50/50 basis. In this case, the investment made by both of you would be equal and so would be the division of profit and loss generated by the end of the year.

Two basic form of partnership are the limited partnership and general partnership. In both these types of partnerships, the difference lies in the nature of liability. In general, partnership business, none of the partners has the limited liability whereas in the limited partnership, at least one of the partners of the partnership business must have a limited liability and the other ones can have the unlimited one.

There are different forms of partners. Depending upon the status of each, the role and responsibilities of each of the partner changes. So, most of the characteristics of partnership business are variable. For example, a sleeping partner have no role in the partnership management, however, an active member does have a role. Rather in the latter case, the partners are expected to contribute for proper functioning of the business. This change of the status of the partnership results in changing characteristics up to some degree.

Advantages and Disadvantages:

There are certain advantages and disadvantages associated with the partnership form of business too. Some of the advantages include the chances of better decision making because of the inputs from a number of individuals; more opportunities for getting the necessary funding; along with the opportunity to get better results because of specialization. The two major disadvantages that can associate with the partnership form of business are the sharing of profit and taking the responsibility of the actions of the other partners. There can be a few more disadvantages as well like lack of complete control and sharing of data etc., but such disadvantages are more business specific.

3. Corporation:

It is an entity with a separate seal. This type of businesses is quite different from the other types of businesses and ownership. In this business type, there can be multiple investors, which are termed as the shareholders of the business. Moreover, the management and ownership of the business are usually possessed by different individuals. The owners hire the managers to perform the business. If you are going to start a new business, then this form of business is a bit tricky and might require a lot of documentation, so it might not be appropriate. The profit earned through corporation is divided in all the shareholders and even double taxation rule is applied by the government on the earnings.

Advantages and Disadvantages:

The advantages associated with this technique include the wide scope of investment and complete formalization of all the processes.  In the disadvantages, double taxation is the most prominent one. You’ll have to pay double taxes. First time on the company’s earnings and second time on the dividends. Moreover, you might have to face the agency problem as well.

4. Co-operative:

It is the business ownership type where the users of the products are the owners of the company as well. Such a type of business is usually for the welfare of others. The advantages and disadvantages of co-operative are also discussed below.

Advantages and Disadvantages:

A cooperative can be helpful in business management especially if the company aims to serve a particular community. Moreover, welfare of the individuals is the first and foremost expectation through this form of business. Various forms within the cooperative are also available to provide you with specific opportunities for the business. But there are some negatives associated with this form of business as well. This form of business does not provide any chances of profit for the owner. Moreover, the presence of large stakeholders can influence effective decision-making..

Amongst these types of business and ownership discussed in this article, the sole proprietorship and the partnership business forms are ready to establish. With them, you can get more benefits, especially if your aim is to start as a small business. However, if you need to go for a large business with a lot of investment, the corporation would be a good choice.  But this is only my opinion, you can analyze the dynamics if your business and choose the type of businesses and ownership that suits you the best.