Pros & Cons of The 7 Forms of Business Ownership (Table)
January 26, 2022
Starting a business? There are a few different forms of business ownership to consider when starting up. No matter what you are going to offer, the first step is to start! The following table covers the basic business types depending on your industry. It is important to consider the characteristics of liability and tax exposure prior to jumping in.
The following is the highlight of each that stands out and a detailed table.
Sole Proprietorship
Pro: Complete control of all company decisions. This is great for companies that are at low risk for legal liability such as a digital goods marketing agency. Complete control is awarded to the owner/operator.
Con: All liability falls on the owner, leaving their assets vulnerable to attack. The owner is also responsible for everything from taking phone calls, performing the work, keeping books, and paying taxes. The load is a lot to handle when growth starts to take shape.
General Partnership
Pro: Brings together a group of ambitious people, promoting business success. This is amazing if you work well with like-minded people. The better talent that you are surrounded with can help cultivate the perfect environment for success.
Con: Business decisions, as well as profits, are split down the middle. Trust will go a long way when deciding to form a general partnership. Be sure to know your partner well before signing the dotted line.
Limited Liability Partnership (LLP)
Pro: Unlimited liability is split across the multiple owners, not just sole liability.
Con: One mistake or shortcoming by one owner can negatively impact the entire team.
Limited Liability Corporation (LLC)
This is one of the most common forms of business ownership. This protects personal assets among individual owner(s).
Corporation
Corporations are subjected to public trading options that shareholders could either benefit from or lose out on. One major con is corporations are double-taxed, the only form of business ownership where this applies.
Joint Venture
Joint ventures are good for sharing success. Through effect assets and efforts, the financial gain can be shared and enjoyed across the team.
Franchise
Company liabilities do not fall in the lap of the franchise owner. The owner must abide by the companies decisions relating to renovations, promotions and other marketing and business-related decisions. The franchise is branded and owned as a whole not by the franchise owner.
Characteristic
Sole Proprietorship
General Partnership
LLP
LLC
Corporation
Joint Venture
Franchise
Liability Exposure
Pro: Complete control of all company decisions Con: All liability falls upon the owner. Personal assets become at risk
Pro: unlimited liability splits among multiple owners, not just sole liability Con: One mistake by one of the owners impacts the other
Pro: Unlimited liability splits among multiple owners, not just sole liability Con: One mistake by one of the owners impacts the other
Pro: Members are not liable for company debts Con: Under special circumstances, owners can be subjected to unlimited liability
Pro: Limited liability, shareholders are not personally responsible for obligations of the corporation Con: Shareholders lose investment money
Pro: Unlimited liability splits among multiple owners, not just sole liability Con: One mistake by one of the owners impacts the other
Pro: Owner is not liable for company liabilities Con: Owner has to abide to all the franchisers decisions such as renovations
Tax Exposure
Pro: Taxed once
Pro: Taxed once
Pro: Taxed Once
Pro: Taxed once
Pro: None Con: Double tax
Pro: Taxed Once
Pro: Taxed Once Con: Royalty and advertising fees in addition to income tax
Owners Relationship
Pro: Owner is his or her own boss Con: Stress can overwhelm an individual when the business depends on their decisions and actions
Pro: Brings together a group of talented people, boosting business success Con: Business decisions and profits are split
Pro: Partnership offers limited liability, easing tension among ownership Con: Profits are spread amongst all members
Pro: Fair distribution of profits among business partners Con: Liability is not inherited by one sole member
Pro: Management may focus more on career development than company gain Con: Shareholders can easily take more interest in profits than employee well-being
Pro:Establish good relationships with other successful owners and partners Con: Profits are spread amongst owners
Pro: Opportunity to run an established business as an owner Con: Products and regulations rules are handed down from corporate
Purpose of Form
Gives individuals the opportunity to own and operate their own business
Combines the ideas and skillsets of multiple individuals to maximize success
Create a partnership while limiting liability
To limit liability among members, while offering fair profit distribution amongst the partnership.
Offer portions of ownership to shareholders
To explore financial gain through combining assets and efforts
To offer potential owners a chance to own a successful, well-established business
Example
A small home healthcare provider
Small, middle or large-sized medical practice
Small, middle or large-sized Accounting firm
Mid-sized product manufacturer
Large clothing manufacturer
Large vehicle retailer
Large fast-food company
Forms of business ownership and related characteristics
Ronnie Lee Roberts II is a brand and marketing super fan and owner & operator of Roberts Consulting Firm. He writes about marketing, leadership, and business.