Business Ownership Structures

Understanding Business Ownership Structures

  • Business Ownership Structures refer to the types of legal and organisational structures under which businesses operate.
  • This is vital because it impacts various aspects of business such as risk management, funding options, tax implications, operations and decision making.

Sole Proprietorship

  • A Sole Proprietorship is a business owned and run by one individual. It is the simplest and most common form of business.
  • The owner has full autonomy on decisions but also bears all risks. All profits belong to the sole proprietor, but they are also liable for all the business’s debts.
  • This structure is suitable for small-scale businesses.

Partnership

  • In a Partnership business, two or more individuals jointly own and run the business.
  • The partners share the profits and losses according to their agreement. Each partner is also liable for the debts to the extent of their share in the business.
  • A partnership enables pooling of resources and sharing risk, but disagreements among partners can arise.

Limited Company

  • A Limited Company is a separate legal entity from its owners. Shareholders own the company through shares; they do not face personal liability for the business’s debts.
  • The company’s profits must be shared among the shareholders. Governance of a limited company is typically seen as more complex.
  • Limited companies can be either private (Ltd) or public (plc).

Franchise

  • A Franchise is a type of business under which a person or group (franchisee) operates under the name of an established company (franchisor). In return, the franchisee pays a fee or a percentage of profits to the franchisor.
  • Franchises can benefit from the established brand, training and support provided by the franchisor.
  • However, franchisees often have less autonomy in decision making.

Cooperative

  • A Cooperative is a business that is owned and managed by its employees or users. The governance is democratic, with each member having equal say.
  • Profits are often distributed among members. A cooperative provides greater control for users or employees but may face challenges in terms of funding and decision-making.

In each ownership structure, owners have the responsibility of meeting the operational and legal responsibilities while maximising profits. It is imperative to understand these structures to select an appropriate one based on the nature and scale of the business.