Forms of Business Ownership
Review this overview of the various forms of business ownership, including advantages and disadvantages, to learn about some of the factors that go into deciding which form is best for any given situation. No hard and fast formula helps an entrepreneur pick the proper form. However, there are some important considerations, such as risk, taxes, transferability, and even image. After you read, complete the concept check questions about the different types of business structures: sole proprietorship, partnership, and corporations.
Going It Alone: Sole Proprietorships
- What are the advantages and disadvantages of the sole proprietorship form of business organization?
Jeremy Shepherd was working full-time for an airline when, at the age of 22, he wandered into an exotic pearl market in China, searching for a gift for his girlfriend. The strand of pearls he handpicked by instinct was later valued by a jeweler back in the States at 20 times what he paid for it. Jeremy cashed his next paycheck and hurried back to Asia, buying every pearl he could afford. Founded in 1996, his company Pearl Paradise was brought online in 2000. Shepherd chose the sole proprietorship form of business organization - a business that is established, owned, operated, and often financed by one person - because it was the easiest to set up. He did not want partners, and low liability exposure made incorporating unnecessary.
Fluent in Mandarin Chinese, Japanese, and Spanish and immersed in Asian culture, Shepherd believed the internet was the way to market his pearls. Offering a wide range of pearl jewelry through 14 websites worldwide, his company sells as many as 1,000 items per day. The recent addition of an exclusive Los Angeles showroom allows celebrity customers to shop by appointment. With $20 million in sales annually, PearlParadise.com is the industry leader in terms of sales and volume.
| Comparison of Forms of Business Organization | |||
|---|---|---|---|
| Form | Number | Sales | Profits |
| Sole Proprietorships | 72 percent | 4 percent | 15 percent |
| Partnerships | 10 percent | 15 percent | 27 percent |
| Corporations | 18 percent | 81 percent | 58 percent |