are three basic legal form of business; they include sole proprietorship,
partnership and corporation. Each differs significantly and should be evaluated
carefully before a decision is made. Other types of business formations are cooperative
societies, government enterprises and professional or specialized businesses. As a prospective entrepreneur or business owner each of these types of business formations must be thoroughly studied in line with your short and long term goals.
Sole Proprietorship: In proprietorship, the owner is the individual who starts the business. He or she has full responsibility for all business operations. Legally the owner and the business are one. It is a one man business.
The advantages of sole proprietorship include the following:
The disadvantages of sole proprietorship include the following:
Partnership: This is a form of business owned by a group of two to fifty individuals. In actual sense there is no limitation on the numbers of partners. Examples of partnership with unlimited number of partnership include professional such as accountants, medical doctors and engineers who partner to form a business.
There are limited liability and unlimited liability partnership. In limited liability partnership, the liability (legal responsibility and accountability) of the business is limited to the resources contributed by the different partners that form the business. In an ideal situation at least one of the partners should have an unlimited status.
Unlimited partnership implies that the liabilities of the business are not limited to the resources of the partners, but extend to the personal assets of individual partners.
The advantages of partnership include the following:
The disadvantages of partnership include the following:
Corporations: A corporation is a form of business form and incorporated as a legal entity by a group of people who own the shares of the corporation. In other word, ownership is reflected by ownership of shares of stock. They are sometimes called joint stock companies. Like the Sole Corporation in which the maximum numbers of shareholders is 100, there is no limit as to the number of share holders who may own stock in a corporation.
A corporation can either be a liability company or an unlimited liability company. A limited liability company has liability limited to the shares of the company, which include cash raised from shares paid for by shareholders. The liability is not extended to the personal asset of its members. An unlimited liability company has its liability extended beyond its members to the personal assets of members.
A corporation could either be a private or public company. A private company is a company owned by private owners and in which shareholders do not exceed hundred. Its share cannot be sold to the public and cannot be transfer without the consent of the company. A public company is a company owned by the general or public investors, which could be individuals or organizations. Its shareholder should not be less than seven and has no maximum limit. Its shares can be sold to the public with no restriction on the transfer of ownership. A public company can have limited or unlimited liability.
Generally, shareholders own the company or corporation but need not be involved in running it. Directors are appointed by shareholders and are responsible to the owners and the law for the way the company is run. They can also be employee of the company.
The advantages of corporation include the following:
The disadvantages of corporation include the following;
Cooperative Societies: A cooperative society is form by a group of people coming together with a common objective to enjoy some form of business and profit benefits. Its registration is guided by law and the formation and operations are guided by bye-laws. The bye-law is like a constitution for every cooperative society. Cooperative societies can exist from groups of consumers, producers, professionals, members of organizations and institutions, seeking to pool resources together for a common good of members.
Government Enterprises: Government enterprises are owned by government whether at the local government, state government or federal government. Examples include industries (like cement factory, flour mill, and agricultural production), investment Company, marketing firms and many others.
Professional Business/Specialized Business: These are business own by a group of professional. Example include a group of lawyers or doctors coming together to establish a chamber or hospitals.