The business firm is an enterprise that operates within a given economy with the primary aim of achieving a well-defined goals and objectives.
According to Nwude, Chuke (2004), one of the critical decisions an investor must take at the onset of the business undertaking is to resolve the form of business ownership he must go in for. That it is very important that the investor knows about the pros and cons of each form of business organization because each form of business ownership has its own implications.
Every business enterprise operates under some form of ownership structure. They include:
- Sole Proprietorship
- Limited Liability Companies
- Cooperative Society and
- Public Corporation
THE SOLE PROPRIETORSHIP
This is a business venture that is owned and control by a single individual who personally receives all the incomes and bears all the responsibilities for the debts and the losses of the business. The owner of this form of business shares the control of the business with no one and is personally liable for all the liabilities incurred by the business. Here, business creditors can look to the proprietor’s personal assets to satisfy business-related claims. That is, he has unlimited liability, which implies that the proprietor’s personal and business assets are viewed as the same by the law.
- It’s very easy to start as it generally required less start-up capital.
- Business operations can easily be monitored and controlled.
- The proprietor enjoys all the profits of the business.
- Flexibility of organization.
- The business pays no tax, except for the personal income tax of the proprietor.
- It has unlimited liability for business debt. That is, the owner is legally responsible for all obligations the business incurs.
- Usually limited capital to finance growth and expansion of the business.
- Death of the owner usually terminates the existence of the business.
- The proprietor might incur losses that exceed the capital invested in the business.
- There are limitations as to the size, staff development, growth and sophisticated management.
According to Okoro, Okoro (2010), partnership business exists when two or more persons come together and pull their resources together for the purposed of carrying out a particular business and agree to share the profits and losses of the business in a particular manner. This form of business ownership is also seen as a business form where two (2) or not more than twenty (20) persons pool resources together to do business with the aim of making profit. Nwude, Chuke (2004).
This form of business ownership is basically a partnership with more than one owner. For a partnership condition to hold, there must be two or more persons coming together and their coming together must be to carry out a business as co-owners, the business must be profit oriented and the profits and/or losses of the business must be shared between the partners according to the partnership terms.
- Partnerships provide a better opportunity for specialization of labour.
- There is also the ease and flexibility of organization.
- More expanded financial capability.
- It also enjoys higher credit ratings than the one-man business.
- Unlimited liabilities of partners.
- Partners often have difficulties agreeing.
- When a partner dies or withdraws, the organization is legally terminated.
THE LIMITED LIABILITY COMPANIES
This is often referred to as the “company”. This is a form of business created by law. It is considered as an artificial, invisible and intangible person, but nevertheless capable of acting in most respect like a natural person. It can make contracts in its name, it can sue and be sued in its name, and it can acquire, hold, and dispose of properties in its name. Ezirim, Chinedu B. (2005).
The company is owned by its shareholders. These shareholders appoint the board of directors. The board represent the shareholders in the company, and the board appoint the managers of the company.
The limited shareholder’s liability is the most striking feature of a corporate entity. Here, unlike the sole proprietorship and the partnership forms of business ownership, creditors and claimants look only to the assets of the company for the satisfaction of their claims. Thus, the personal assets of the owners are very distinct from the assets of the company.
Other features of the limited liability companies include going concern or continue existence, transferability of shares, the company as a producer, the company as a socially responsible person, among other features.
The two (2) main types of limited liability companies are private liability company (Ltd) and public liability company (Plc.).
- The limited liability of it owners.
- Easy transferability of shares.
- Ability to raise capital diverse sources.
- Continue existence of the company.
- Unlimited scope of operation and expansion.
- It required a large amount of capital and time to establish it.
- Corporate earnings are subject to double/multiple taxation.
- The potential loss of control by the owners due to the separation of ownership from control.
- Usually slows in making decisions.
- Conflict of interest between shareholders and management.
Cooperative society is an association of individuals with common economic interests, which they collectively seek to promote for the benefits of its members. Nwude, Chuke (2004).
Here, members pool their resources together to achieve a nominated objective, which is mainly to maximize the welfare of each member. Persons who have agreed to come together in this form of business ownership jointly own the business and elect from among themselves those to manage it, the arising profits being shared among them.
We have different types of cooperatives, they includes producer’s cooperatives societies, consumer’s cooperatives societies, thrift, credit and loans cooperative societies, housing/building cooperative societies, multipurpose cooperative societies.
THE PUBLIC CORPORATION
These are business entities established and owned by the government for the interest of the public. They are usually not profit oriented; they are thus, oriented toward enhancing societal welfare.
Public corporations are usually established by an act of parliament or military decree, with specific aims and objectives, also stating how it may be run and manage.
The main reason for the establishment of the public corporation is the apparent inability of the private sector alone to operate certain projects that involve huge risk, enormous costs, and low profit margin. Some delicate sectors are prohibited for entrance by the private sector all in public interest.
Chuke, Nwude (2004). Basic Principles of Financial Management: A First
Course. Chuke Nwadube Nigeria Enugu. Enugu State, Nigeria.
Chinedu B. Ezirim (2005). Finance Dynamics: Principles, Techniques and
Applications. Port Harcourt, Markowitz Centre for Research and
Development. p 329-342
Okoro, Okoro E.U (2010). Managerial Economics: An Interdisciplinary
Approach. Enugu, Twoway Printers and Publishers. p 41-47