Business ownership’s or business organizations
Business has a long history of evaluation, almost parallel to human history. With this long evolutionary process, different forms of ownership have gotten recognition as forms of business. Different forms of business ownership are as follows:
- Single Proprietorship or Proprietorship Business
- Joint Proprietorship Business
- Mixed Ownership Business
- State-owned Business
- Multinational Ownership or Multi-National Corporations
Joint proprietorship business may be of the following types:
- Departmental Business
- Joint Stock Company or Corporation
State-owned may be of the following types:
3. Statutory Business
Business may also be of micro, small, and large scale.
Single Proprietorship or Proprietorship Business:
The business that is owned by a single person is known as proprietorship or single proprietorship business. This type of business is the traditional and useful form of business ownership. A single owner is the absolute processor of the business. He is the decision-maker, investor, manager, and controller of the business.
1.” A sole proprietorship is a business owned by one person and operated for his profit.” Introduction to Business.
2. “The sole proprietorship is that form of business ownership which is owned and controlled by a single individual.” Introduction to Business.
Characteristics of Proprietorship Business:
A proprietorship business is owned and managed by a single business. This business process the following characteristics:
1. Single Person Ownership: A single proprietorship owns the proprietorship business. He is the owner, initiator, and manager of the business.
2. Owner and Manager: The owner of the single proprietorship is also the manager of the business. Here ownership and management is not separate, as it is in case of company or corporation, instead it is integrated.
3. Unlimited Liability: In the sole proprietorship business, owner liability is unlimited for the business debit. Owner’s personal property is also liable for the business debt.
4. Liquidity: The liquidity of business or investment is poor in proprietorship business. The seller must sell his investment or part of it to get his capital returned.
5. Entity: The business of proprietorship has no separate entity. The owner’s entity and the business entity are inseparable.
6. Tax Treatment: The profits or gains arising from the proprietorship follows to the owner and are taxed with other income of the owner at the personal rates.
7. Easy Formation: The formation of proprietorship business is very easy. No legal formalities need to be carried out, other than taking some licenses.
8. Short Duration:The duration or life span of proprietorship business is usually short period. The death of the owner may cause an end of the life of the business.
9. Distribution of Profit: Owner is the absolute possessor of profit of a sole partnership business. So there is no necessity of profit distribution.
10. Personal Contact with Outsiders: As a single owner is the proprietor, manager controller, and supervisor of sole proprietorship business, he has personal contact with the customer and all other outsiders.
11. Strict Control over the Whole Business: As a single owner owns and controls the whole business, he can control the whole business strictly.
12. Scope for Absolute Secrecy: The owner of the proprietorship business only can maintain absolute secrecy of the business policies and strategies, as there is no possibility of information leakage.
13. Easy of Localization: Sole proprietorship business may be established at any location for its small size, which is not possible in the case of other types of business.
14. Performance Appraisal: The sole proprietor of the business has access over any information of the business, so he can easily appraise the performance and formulate appropriate policies and strategies for the business.
15. Termination: Proprietorship business may be terminated easily. No legal formalities are required to be carried out in case of termination of proprietorship business. Owner’s inability to run the business may cause sudden termination of the business.
Advantage of Sole Proprietorship Business:
Single sole proprietorship business process a number of advantages, which are as follows:
1. Easy formation: Any person or individual can easily open a proprietorship business. No legal formalities are needed to be carried out.
2. Adequacy of small capital: Small amount of capital is sufficient for the sole proprietorship business, as ordinary or no establishment is adequate for the operation of any proprietorship business.
3. Maintenance of privacy: Privacy plays important role in the success of business. Privacy of business secrets Should be maintained for future success. As proprietorship business is a one-man business, so privacy maintenance is easy in this type of business. Further, information need not be disclosed to the tax authority. So privacy maintenance is easy here.
4. Strict control: Strict control is significant for the success and survival of the business. The sole owner can apply overall control over the business and its activities.
5. Law tax implications: The applicable tax rate in the case of proprietorship business is the personal tax rate, which is lower than the corporate tax rate. By payment turnover tax and shop tax, the owner can avoid other tax implications applicable in corporate activities.
6. Maintenance of personal contact with customers: As a proprietorship business is a one-man business-driven in assistance with the employee’s services, the owner can ensure personal supervision and maintain a personal relationship with the customer individually.
7. Easy alteration: The change of the pattern and the location of the business of sole proprietorship is also very easy and can be done at the absolute discretion of the owner.
8. Unique adaptability: Because of small size and swift adaptability proprietorship is unique in some areas and has no competitor from big proprietorship firms or corporations.
9. Quick decision making and easy implementation: In the case of decision making with the decision may be taken in the case of proprietorship business and may be implemented easily and swiftly.
10. Easy termination: In case of continued losses or business failure or bankruptcy, the business needs to be closed. This termination is very easier in the case of proprietorship than that of proprietorship firms or companies.
Disadvantages of Sole Proprietorship Business:
Sole proprietorship business also suffers from some advantages, which are as follows:
1. Small size for business expansion: Usually, sole proprietorship business is of small size. The size of this type of business cannot be extended, because of the limited capability and financial strength of the owner. On the other hand, proprietorship firm and company can adapt to expansion.
2. Small capital: Usually, an individual can not afford a large amount of capital. Because of small capital, proprietorship firm can not afford capital-intensive technology as is possible in the case of joint proprietorship, i.e., partnership company.
3. Poor credit standing: The owner may have to pay more cost for his loan. Because of poor credit standing the financial institutions may claim more security and charge higher rate of interest.
4. Unlimited liability:The liability of the owner of a proprietorship firm is unlimited. Unlimited liability is another is disadvantage of sole proprietorship business. In case of loss or bankruptcy, the owner’s personal property is also liable for the business debt.
5. Limited managerial ability: Another disadvantage of a proprietorship business is that the owner process limited managerial capability, however efficient he is. The single owner is solely responsible to cater the need of the business and its expansion.
6. Poor existence: Proprietorship business cannot survive for longer period. The death or personal injuries of the owner may cause a sudden termination of the business.
Thus, proprietorship business suffers from a number of disadvantages.