Forms of Business Ownership

3. Company

A company is a business, which is considered a separate entity from owner; even having the legal rights of a person.

 Advantages of Corporations.

i. Limited liability.

Limited liability is probably the most significant advantage of corporations. Limited liability means that the owners of a business are responsible for losses only up to the amount they invest.

ii.  More money for investment

To raise money, a corporation sells ownership (stock) to anyone interested or corporations can also raise money from investors through issuing bonds. Corporations may also find it easier to obtain loans.

iii.  Size.

Corporations have the size and resources to take advantage of opportunities anywhere in the world.

iv. Perpetual life

The death of one or more owners does not terminate the corporation.

v.  Ease of ownership change i.e.  selling stock changes ownership.

Disadvantages of corporations.

i. Extensive paperwork

A corporation must prove all its expenses and deductions are legitimate.A corporation must keep detailed records.

ii. Double taxation

Corporate income is taxed twice.The corporation pays tax on income before it can distribute  to stockholders.The stockholders pay tax on the income they receive from the corporation.

iii.  Two tax returns

A corporate owner must file both a corporate tax return and an individual tax return

iv.  Initial cost.

Incorporation may cost thousands of dollars and involve expensive lawyers and accountants.

 

4. Franchising

Franchising is a business arrangement in which the owner of a trademark, trade name, or copyright has licensed others to use it in selling goods or services. It can be sole proprietorship, partnership or company form.

Advantages of franchises:

i. Personal ownership

You are still your own boss, although you must follow the rules, regulations, and procedures of the franchise.

ii. An Established Business

A franchise offers the advantage of operating under the banner of an already established business. The ideas, the brand, the operating techniques and much more are already tried and tested and in place ready to be implemented again and again at a new location as each franchisee takes up the mantle.

iii. A Known Brand

Operating under the banner of a franchise allows a franchisee to take advantage of the previously established brand of the business. This means there will (in theory) be far less work (and cost) involved in trying to establish and build on the brand of the business. It will already be known and trusted by the market and therefore should produced a steady stream of brand-loyal customers.

Disadvantages of a Franchise

i. No Control

The first and most significant disadvantage of a franchise is the fact that the franchisee has no control of the business or how it is run (or very limited control). The rules of the business are already established and part of the franchise agreement. How the business operates is set out by the brand of the franchise and it is very rare that a new franchisee will be able to operate outside of these borders.

ii. Tied To Suppliers

Operating a business, you’d probably like to keep costs down. Finding the cheapest suppliers to minimise your overheads and maximise your profits. But being part of a franchise means you’ll be required to use the franchise supply network.

iii. Cut Of Your Profit

The franchisor will expect a cut of your profit. You do all the hard work and still have to pay them for the privilege of using their name (and support). When times are hard, this might mean a further reduction in already low profits and a struggle for your business.

 

Each form has its advantages and disadvantages. And the choice of form of business ownership will directly affect how much taxes owner have to pay and what business licenses and documents are required. In majority of cases and is perfectly acceptable that small businesses start as one form of ownership and changes to another with its growth. Entrepreneur is not bounded by their first choice of form of business. Entrepreneur can decide to hire help form a lawyer or an attorney who specializes in small businesses and will help an entrepreneur to choose a form of business ownership and ensure him about getting all the required permits and license

Forms of Business Ownership

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