Basic Types of Business Ownership

Basic Types of Business Ownership

There are many types of businesses whose ownership and functions differ; it requires a bit of learning in understanding all the different kinds of businesses before entering the corporate world as a business owner. Possibly the most significant thing that can be done when starting or acquiring a business is to establish which form of business ownership is good for you.  There are in fact numerous ways that can be used when one wants to own a business, each with its own legal and financial implications that accommodate various advantages and disadvantages.

Sole Trader or Proprietor
This is the simplest form of business ownership where one individual owns and operates the whole business, he/she assumes all the financial responsibility, and receives all profits from the business itself.

This form of ownership is the most common, and is often the way in which most small businesses are first established.  It also requires very little paperwork and carries no capital restrictions, but means that the business itself has no legal entity separate to its owner, increasing liability.

Partnerships
Many businesses begin as partnerships, or adapt this kind of ownership following some growth.  In such a scenario, numerous partners take on the duties implicated in financing and managing the business, and receive predetermined shares of the profits, as well as assuming legal responsibility for debts incurred.

Sharing the costs and responsibilities involved in the business between multiple individuals can be cost-effective, let alone allowing the advantage of multiple perspectives on various business decisions.  However, having a strong bond of trust and general agreement between partners is vital if these decisions are to be made without difficulties arising.

Co-operatives
These are formed as a result of combining resources or companies unite to meet common economic or social needs through the co-operative enterprise (i.e. the business).  In this situation, the co-operative is jointly owned and controlled by all the members.

Co-operatives have their own legal entity, and have the advantage of combined resources of all their members.  However, as returns on capital are often not as high as with other forms of business ownership, there is often less incentive for members to invest more in the early days of the co-operative.

Close Corporation
This is a form of business ownership made possible by two governmental Acts (the Close Corporation Act 69 of 1984 and the Companies Act 71 of 2008) that spell out the legal requirements for a business to be eligible as a close corporation.  As such, the legal restrictions on how the close corporation is owned and operated are quite rigorous (though less so than for companies).

As a close corporation does have its own legal entity, liability for its members is reduced.  However, the number of members that are allowed is restricted to ten, potentially limiting the growth of the business.

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