Introduction
In the context of a business environment, there are different forms of firms’ ownership depending on the way that it is being formed and operated. Firms/businesses can either be for profit making or non-profit - state-owned. The common ways of organizing a business, based on its ownership, include Sole Proprietorship, Partnership and Corporation (Anonymous, n. d.). However, these forms of firms’ ownership are discussed below;
Sole proprietorship: This form of business belongs to one person and it is operated mainly for profit or benefit of the owner. The owner can operate this business alone or with other close individuals such as relatives or friends. In addition, this form of ownership is not state-registered as compared to limited liability company/corporation. There is no any special paperwork filed during its start-up, but only one is created for individual purpose. From the legal point of view, this form of business cannot be separated from its owner, that is, the owner and the business are one (same). In another way, the business’s owner reports profits and losses on his/her individual (personal) tax return and also is personally responsible for any obligations of the business such as court judgments or debts (has unlimited liability).
Partnership: This form of business belongs to two or more people. An individual (partner) is subject to unlimited liability for any debts that are incurred from business activities. Similarly, there is no any paperwork filed in order to start this form of business ownership, meaning that the arrangement takes off once the business is started by two or more individuals. Furthermore, the owners of partnership pay taxes, based on their shares of income from the business, on their individual (personal) tax returns, and also they are individually liable for the total amount of any claims and debts arising from the business. Examples of this ownership include limited partnerships, limited liability partnerships and general partnerships.
Corporation: The owners of this form of ownership are subject to limited liability and the entity is legally separated from its owners, meaning that the owners’ personal liability is limited for obligations (such as court judgments and debts) arising against their business. Corporations can either be owned by individuals or the state (government). Additionally, they can either be organized for profit or non-profit making organizations.
In business, there are three activities that are mainly involved in the generation of funds, used for running privately owned companies in a more efficient and effective way (Boundless, n. d.), and they include the following;
Operating activities: These activities are those of production, sales, as well as delivery of the firm’s product and also a collection of payment from the customers. Examples in private firms include purchase of raw materials, advertising, shipping of products, and building inventory.
Investing activities: These activities include that of sales and purchases of an asset (can either be equipment, land, marketable securities, or building, etc.), received loans from the customers or made loans to suppliers, dividends received, and payments that relate to mergers and acquisitions.
Financial activities: These activities include those of cash inflow from the investors, as well as cash outflow, in form of dividends to shareholders as the income is generated by the company. However, the other activities that tend to affect the long-term equity and liabilities of the firm are also classified under financial activities.
Bibliography
Anonymous (n. d.). Types of Ownership Structures. [Online] Available at: <http://oneal.research.ucf.edu/Class/GEB5516_4152/Business%20Structure/Business%20Formation-Ownership%20Structures.pdf> [Accessed 3 April 2014].
Boundless (n. d.). Activities of the Business: Financing, Investing, and Operating. [Online] Available at: <https://www.boundless.com/accounting/introduction-to-accounting/overview-of-key-elements-of-the-business/activities-of-the-business-financing-investing-and-operating/ > [Accessed 3 April 2014].
