The Three Types Of Business Ownership

Sole Traders

One of the three types of business ownership is a ‘Sole Trader’. A sole trader is an exclusive individual who owns the business which has been established. There are many advantages and disadvantages to this type of ownership alongside with any type of ownership. The formation of this type of business ownership is straight forward due to only one person owning the business and not multiple people possible disagreements between partnerships can be avoided. When a business is owned by a sole trader the firm generally is on the smaller side of the scale and is therefore usually easier to set up. Smaller businesses generally have smaller amounts of capital items needing to be invested in. This therefore reduces the initial start-up

Within the contract it often states which member of the partnership has invested what into a business (capital items). One of the main advantages to having a partnership owned business is that shared responsibility comes with this type of ownership. Due to this it can be easier to overcome problems as well as sharing the overall stress which come alongside owning a business. Business decisions can be consulted within a partnership whereas in a sole trader ownership it is down to one person. However disputes can arise when there are multiple opinions within the ownership of a business, disputes can also rise over the amount of effort put in by certain members of the partnership compared to the others.

In order to distribute the profit within a partnership owned business the profit has to be calculated through the deduction of allowable business costs and capital allowances from the business’ profit.

Once the final profit figure has been calculated the partners are then able to dispute the income profit between them as stated within the contract whether that be equally or percentages. Once the partners have all received their individual shares personal allowances are taken away from the

One major difference is through the distribution of profit. Whereas the distribution in a business owned through sole traders and partnerships is often split between those who own the business a company has many more areas to split profit. Companies often have two options in how to distribute their profit. They can either reinvest them within the business or they can give them to shareholders as dividends. Companies on a very large scale often have Board of

Directors who will generally decide the distribution between the two different options. In general companies on a smaller scale chose a mixture of reinvesting profits into the business and giving their shareholders a dividend (often given annually).

The liability of a company varies compared to the variety of a sole trader or a partnership owned business. A limited liability company (LLC) means that members of the company cannot be held personally liable for the company’s debts or liabilities. This is very different compared to sole traders and partnerships which can be held personally liable and have to cover any debts. A LLC combines the characteristics of a corporation and a partnership or sole trader. However, it is important