Forms of Private Business Owners

Donald L. Bryant

29 June 2015

BUSN 5000

Forms of Private Business Owner Assignment

     There are many forms of private business ownership, but I will compare and contrast the three main categories and choose the form I will use for opening my own business. These three types of business ownership are: Sole proprietorship, partnerships, and corporations. Which one is right for you can depend on several different factors and how you answer these questions?  Are you’re just starting out? What is your tax situation? What type of business do you want to run or own? What are your business goals? What type of legal representation or coverage do you need are want? Do you work well with others or would you rather work by yourself?

     Sole proprietorship is oldest, easiest to setup and simple to understand. It also makes up more private business owners than any of the other business structures combined. According to the U.S. Census Bureau, in an abstract published in Jan of 2014, sole proprietorship makes up 72% of all private business owners and is usually comprised of small business owners like mom and pop stores, handymen, flower shops, hair salons and other small shops. Some of the advantages of this type of ownership is that you get to be your own boss and don’t have to answer to anyone, it is relatively easy to setup and breakdown, and it offers the owner the greatest about of flexibility. The owner also doesn’t have to share any of the profits and will be rewarded directly for his or her hard work and success. Some of the disadvantages with this type of ownership are the owner must use his/her own financial resources and puts themselves at risk of losing their own funds because if the business fails they assume all responsibility for the debts and losses. Basically, there is no difference, legally, between the business and the business owner.

     C-corporations and S-corporations make up the second largest type of private business ownership at about 19%, but I will discuss C-corporations. This business form can be made up of small or big companies and will issue shares to its owners to include foreign shareholders and each owner has only a limited amount of liability. There are a lot of advantages and disadvantages of incorporating your business, but biggest advantage for most owners is probably the fact that you are legal separate from your business and your personal assets cannot be taken if the company goes bankrupt and offers legal protection if the company is sued. Another advantage is the fact that you can generate more cash for R&D or expansion thru moving your own money around or by raising money through investors. Some disadvantages of this business structure is that it is the most complicated and hardest to setup, but the biggest disadvantage for most owners is probably the about of taxes you pay. Not only does your company have to pay state, local and federal taxes but the owners will also have to pay taxes on their investment gains, dividends and their own personal income.

     Partnerships are the third major form of private business ownership and makes up about 9% of the all the private businesses. They are relatively easy to form and will require the owners to register their business name and obtain any mandatory licenses. This form of ownership is made up of two or more individuals that will share the responsibility of running a business and will also share its profits or debts. This type of ownership has other advantages as well. You can bring more talent to the table if you have partners that may be more business-minded and maybe another that is more technologically savvy. You also can bring more money to the table without having to divvy out ownership in the form of shares. This type of ownership is not without is disadvantages though. If the company doesn’t make it and ends up having to file bankruptcy all owners in the partnership are responsible with their personal funds. The company will also be harder to split up because you can’t just leave or quit the company you have to find someone to take over your interest in the company. Also, if a partner dies, a new partnership must take over the remaining interest and the estate now has ownership of that part of the company. Lastly, and probably the hardest disadvantage to deal with is the decisions of your partner affect you and your company. If he or she decides to do nothing or make bad choices or does things that are detrimental to the company you will have to find a way to change it or deal with it, basically you give up some control in a partnership.