Quiz 3: Forms of Ownership of Small Businesses


Small business means the company running business operations at a small scale, the size of small scale business is limited. The owner of the small business invest their capital, the capital is limited with less number of employees. Some basic questions to ask while deciding on the legal form to choose for a small business are as follows: 1. A person who wants to start the business should choose the size of the business. The person should choose whether to start small scale company, medium scale company and large scale company. 2. A person should select the nature of the business. The person should do business in which type of products or the person should start the manufacturer, wholesaler or retailer company. 3. A person should read out the notifications of tax. He or she should read out the different structures of the companies which should get selected by the person. Every organization have different tax implications. 4. A person considered the expected profits or loss of the company, the earnings of the company, its re-investment ratio. 5. A person should considered the ratio of their family memebers that which family member should be responsible for the business loss and profits.

The person can start different types of organizations like proprietorship, partnership, company, limited-liability Company, unlimited company, joint ventures, and social trusts. The companies can be small -scale or large scale industries. PROPRIETORSHIP It is known as soletrader, and entrepreneurship. In this, only one person is the owner of the company who takes the decisions related to business operations. The loss, and profit should be bear by him only. Every asset of the company is purchased by one person, and there is no legal distinction in the owner, and the business entity. PARTNERSHIP A partnership is that form of business where more than two persons enjoy their share in the company. All the partners have a same responsibility to manage their business, and share income and loss raised from the business. The partners can claim their income when they file their personal tax returns. There are three types of partnership General partnership, and Limited partnership. CORPORATION A corporation is considered as an separate legal entity. The corporations enjoy their responsibilities, and rights which are possessed by the individuals while they get enter in contracts, or borrow sum amount of money. LIMITED-LIABILITY COMPANY LLC is called as a corporate structure company, the owners don't get personally liable for the debts, and liabilities of the organization. These companies are considered as hybrid entities who have a combination of a corporation with the partnership, and proprietorship. COOPERATIVE An cooperative is considered as an association of persons in order to meet the main requirements like economic, social, and cultural needs. A cooperative business get owned, and managed throught the people who use their own services. JOINT VENTURE A joint venture is consider as a arrangement of the business, where two or more parties get agree to invest their limited resources in order to achieve the particualar task. In joint venture, every participant is responsible for the profits, costs, and loss. It has their own entity, which is different from the participants.

Proprietorship is known as soletrader and entrepreneurship. In this, only one person is the owner of the company who has to take the decisions related to business operations. The loss, and profit should be bered by the owner only. Every asset of the company is purchased by one person, and there is no legal distinction between the owner, and the business entity. Advantages of Proprietorship Simple to form The person can easily establish the sole trader, it doesn't require more legal requirements, and the person can start his or her business without any registration. The person should have necessary documents to get registered their firm. Freedom to take decisions and control The owner of the business has freedom to take business decisions. He or she can take decisions as per their knowledge and experience. They don't require any permission from other persons related to the business, and he or she is not answerable to any other person. Secrecy In Proprietorship one person took decisions for the business operations. The owner don't have to share his or her ideas with another person. Hence, he or she can keep secrecy of their business decisions. Disadvantages of Proprietorship Limited life The life of a proprietorship is limited because only one person is the owner of the business. With the death of the owner, the company will get close because business and owner both are legally same. Owner has Unlimited Liability The liability of the person is unlimited in sole proprietorship firm, when losses arrive, only one person is responsible for the loss, and profits. The full liability is of one person. The personal assets of the person can be used to discharge the liabilities. Limited capital There is only one person who have to invest his or money. The owner can only borrow the money from friends or relatives. The owner have limited funds to operate the business operations.