Types of business organisation

Before starting your own business you have to choose the type of proprietorship in which you will own it. You should know that any business should be privately owned in three main forms. These forms are: the sole proprietorship, the partnership and the corporation.

The sole proprietorship. The sole proprietorship is the simplest organizational form. There is one owner who takes all profit after paying income taxes, and who is responsible for all business debts. He or she can make decisions without consulting anyone.

The strength of this form is in the direct personal interest of the proprietor in the efficiency of his business.

The great disadvantage of the sole proprietorship is that the proprietor is personally responsible for the debts of his firm and his liability is unlimited. One-person business is widely used in farming, retailing, building, repair work and personal services such as hair dressing, beauty shops and the like.

The partnership. Partnerships are voluntary combinations of from two to twenty persons formed for the purpose of carrying on business with a view of profit. Partners share responsibilities for decision making, profit and debts. They usually get tax benefits from the government. There are two types of partnerships: with limited and unlimited liability. It depends on the fact if partners are responsible for all business and for all debts or not.

The disadvantage of partnership is that partners may disagree with each other. Where trading risks are great partnership is not a very stable type of organization.

Partnership is a common form of business organization in such professions as law, accountancy, medicine, insurance, stockbrokerage and real estate.

The corporation. A business corporation is an institution formed by two or more shareholders, who put money into business and get a share of profit. Their share of ownership is represented by stock certificates. This form of ownership allows attracting financial resources, investing a large amount of capital into production, equipment and research, offering high salaries and attracting talented managers and specialists. Except privately owned corporations there are some other types two, such as educational, religious, charitable and governmental ones. Usually they don’t issue stock certificates and are non-profit.