[PDF] Types of Ownership for Small Businesses | Entrepreneurship and Start-ups | New Topic [2024]

In this note, Poly Notes Hub is going to talk about Different Types of Ownership for Small Businesses like – Sole proprietorship, Partnerships, and Joint Stock company- public limited and private limited companies.

Author Name: Arun Paul.

Different Types of Ownership for Small Businesses

There are three types of ownership for small businesses, which are:

1. Sole proprietorship
2. Partnerships
3. Joint Stock company- public limited and private limited companies

1. Sole proprietorship Business

A business structure owned and run by one person is called a sole proprietorship.

Key Characteristics

1. It is a simple form of business.
2. The owner has full control on this type of business.
3. All profits go to the owner.

Advantages

1. A sole proprietorship is easy to set up and requires little paperwork.
2. Quick decision-making without the requirement for agreement or consultation.
3. The owner’s personal tax return is usually where business profits are disclosed, which streamlines the tax reporting procedure.

Disadvantages

1. All the responsibilities and costs of the business are directly carried by the owner.
2. Compared to larger business arrangements, raising financing might be more difficult for sole owners.

Examples of Sole proprietorship business

1. Small retail shops
2. Consultancy services
3. Freelance businesses etc.

2. Partnerships Business

A partnership is a type of business structure in which two or more people manage and run a company in line with the rules and goals outlined in a partnership agreement.

Types of Partnerships Business

1. General Partnership: Partners share equally in both responsibility and liability.
2. Limited Partnership: Involves both general partners (with unlimited liability) and limited partners (with liability limited to their investment).

Key Characteristics

1. In a partnership, two or more people share responsibility and ownership.
2. As specified in the Partnership Act, partners divide profits and losses among themselves.
3. There may be designated managing partners or partners who actively participate in the business’s management.

Advantages

1. In partnerships, decision-making and managerial responsibilities can be shared.
2. By combining their resources, partners can increase their potential for capital and stability in their finances.
3. In order to prevent double taxation, profits and losses are passed through to the individual partners.

Disadvantages

1. The personal liability of general partners for the debts of the partnership is infinite.
2. Partner disagreements might result in disputes that could harm the company.

Examples of Partnerships Business

1. Professional service firms
2. Family Business

3. Joint Stock Company

A corporate entity known as a joint stock company is one in which stock shares serve as ownership symbols. The company’s owners are its shareholders, whose liability is capped at the amount they have invested in the business.

Key Characteristics

1. The company’s owners are its shareholders, who own its ownership in shares.
2. Liability of shareholders is capped at their total investment in the business. In general, personal property is safeguarded.
3. Regarded as a different legal entity from its shareholders, the corporation

Types of Joint Stock Company

There are two types of Joint Stock Company

• Public Limited Company (PLC)
• Private Limited Company (Pvt. Ltd.)

About Public Limited Company

A Public Limited Company (PLC) is a company entity where shares are sold on a stock exchange to the general public, distributing ownership among them. Shares in a PLC are freely purchased and sold by the general public, and the business must comply with strict reporting and regulatory requirements.

Advantages

1. Easier access to funding via shares that are sold publicly
2. Enhanced public visibility and credibility.
3. Easier implementation of employee stock option programmes.

Disadvantages

1. Higher expenditures associated with meeting regulatory standards.
2. The original founders may lose power if shareholders start to have influence.

Examples of Public Limited Company

Examples include large corporations such as Apple Inc., Microsoft Corporation.

About Private Limited Company

A Private Limited Company (Ltd) is a commercial entity in which shares are not publicly traded on stock exchanges and ownership is limited to a particular set of people. Compared to a Public Limited Company, this type of company has fewer regulatory restrictions and a smaller number of stockholders.

Advantages

1. Founders may continue to have a greater impact on the business.
2. Lower regulatory and reporting requirements, offering more flexibility.
3. Limited liability covers the personal assets of shareholders.

Disadvantages

1. Limited capacity to raise funds compared to public enterprises.
2. Less liquid shares are those that cannot be readily traded on the stock market.

Examples of Private Limited Company

Examples include many family-owned businesses, startups, and small to medium-sized enterprises (SMEs).