Forms of Business Ownership

Forms of Business Ownership

Business is a commercial enterprise performing all functions of operating the production, distribution and sale of goods and services for the benefit of the buyer and the profit of the seller. When the era of economic progress began, old ways of running business have been modified, and new forms of business organization have been introduced. Any field of business is opened to the owners if it is not prohibited by law. Sole proprietorship, partnership and corporation are the main three forms of business ownership now.

A sole proprietorship is a business owned by one person. The latter is fully responsible for the success and the failure of the business. A sole proprietorship is the most common form of business in the countries with developed market economy. It often operates in the sphere of service industry. Beauty parlors, hairdressers, bakeries, different repair shops, florists, cafes and restaurants of national cuisine usually belong to single owners. This form of ownership has a few advantages. a) It is easy to establish. b) It is not subjected to federal taxation. c) All the profits belong to the owner. There are a few disadvantages as well. a) Limited finances – a single owner is seldom able to invest as much capital as can be obtained by a partnership or a corporation. b) Besides, he runs great risk of losing it because he is personally liable for the debts of the business – all the personal assets of the owner, including his home and car, can be sold to settle the debts. c) The banks may refuse to give credits to a single owner in critical times; d) it is difficult to hire and keep good employees, because this form of business is unstable and easily destroyed.

A partnership is an association of a few persons to carry on business for profit. Partners may combine their financial assets, labor, property, abilities and other resources. Partners sign a contract which determines general policy, distribution of profits and responsibilities. When the owners of the partnership have unlimited liability they are called general partners. If partners have limited liability they are "limited partners". There may be a silent partner as well – a person who is known to the public as a member of the firm but without authority in management. The reverse of the silent partner is the secret partner – a person who takes part in management but who is not known to the public.

Partnerships may exist in such professional fields as medicine (cosmetology, dentistry), law (consulting firms), accounting, insurance and stockbrokerage. Like the sole proprietorship partnership is easy to establish (a), and gets tax benefits from the state (b). Financing is easier to obtain (c), because the personal assets of the group are usually larger. The major disadvantage of this form is (a) unlimited liability of each partner for the debts of the whole business and for the debts of other partners. Another great disadvantage is (b) disagreement between partners. Furthermore, (c) it is difficult for one companion to leave the business without destroying it – it is not stable either.

A business corporation is an organization that allows people to associate together for the purpose of making profit. C. are also known as joint-stock companies. C. are owned and run by stock-holders who receive dividends on their shares. (Besides, there are other types of C. – non-commercial ones. Religious, charitable institutions may incorporate too. There are also governmental corporations – state universities, state hospitals, city owned utilities – usually do not issue stocks and if they have profit it is usually reinvested rather than distributed among the stockholders). C. operates in such sectors of the economy as manufacturing of goods, heavy industry, transportation, construction, mining, banking and retail trade. C. is more difficult and expensive to organize than other business form. It has a number of advantages. First, investors can limit their personal liability to the amount of money they have invested. If the C. goes bankrupt, they lose no more than they have invested. Second, C. exists independently of its owners. Third, C. attracts great amounts of money and it enables the C. to buy modern equipment, to do scientific researches, to offer high salaries and hire best professionals and talented managers.

The great drawback of C. is double taxation – C. pays taxes on their net profit and each stockholder pays taxes on the income he receives as dividends. Different kinds of reports for regulating and controlling bodies may be considered as another drawback of this business form. The growth in corporate size has brought about one more problem – increasing separation of control from ownership. Management tends to act only in their own interests. C. giants begin to ignore the competitive market and become monopolies.

However, in terms of size and influence it is the C. that has become the dominant business form in countries with free market economy.

Дата добавления: 2015-11-04