5 types of business ownership

Introduction To Business

1. Types of Business Ownership MR.ABDULAHI ABUKAR HORMUUD UNIVERSITY

2. Some of the questions that you’d probably ask yourself in choosing the appropriate legal form for your business : 1. What are you willing to do to set up and operate your business? 2. How much control do you want? 3. Do you want to share profits with others? 4. Do you want to avoid special taxes on your business? 5. Do you have all the skills needed to run the business? 6. Should it be possible for the business to continue without you? 7. What are your financing needs? 8. How much liability exposure are you willing to accept? Abdulahi Abukar “ ABAJEY”

3. Introduction If you’re starting a new business, you have to decide which legal form of ownership is best for you and your business. Do you want to own the business yourself and operate as a sole proprietorship? Or, do you want to share ownership, operating as a partnership or a corporation? Before we discuss the pros and cons of these three types of ownership—sole proprietorship, partnership, and corporation—We all ready address you some of the questions that you’d probably ask yourself in choosing the suitable legal form for your business. Abdulahi Abukar “ ABAJEY”

4. Factors to Consider There really is not one right form of ownership. The correct form depends of the type of company, the goals of the owners, and the plans of what the company may become. Factors such as tax considerations, liability experience, capital requirements and structure and ownership control all play a role is determining which form is correct for a business . Abdulahi Abukar “ ABAJEY”

5. Abdulahi Abukar “ ABAJEY”

6. sole proprietorship A sole proprietorship is a business owned by only one person who has unlimited liability. The most common form of ownership, it accounts for about 75 percent of all U.S. businesses. U.S It’s the easiest and cheapest type of business to form: you can use your own name as the name of your business, you just need a license to get started, and once you’re in business, you’re subject to few government regulations . Abdulahi Abukar “ ABAJEY”

7. Con.. • Unlimited Liability- a legal responsibility stating that the owner must settle all debts of the business. If the debt of a business is larger than his personal assets than they may be forced into bankruptcy • Economies of Scale- are the factors that cause average costs to be lower in large scale operations than in small level ones. Abdulahi Abukar “ ABAJEY”

8. What is a sole trader? Sole trader is a person who owns and operates their own business. They may or may not employ other people. It is important to remember that a sole trader is usually a relatively small business with little capital available for expansion and the capital that has been invested comes from one source and that is the owner. Sole traders are common businesses. Example of a sole trader business is a hairdresser. Abdulahi Abukar “ ABAJEY”

9. Advantages of Sole Proprietorships The advantages of being a sole trader are : • Profits - they are kept by the owner. There are no other shareholders so the profits don't have to be split . • Easy to run- every business is difficult to run successfully but sole trader is the easiest form of business • Easy to set up- hardly any complicated forms or measures. Some of the other legal forms have to have legal forms completed before the business can start. Abdulahi Abukar “ ABAJEY”

10. Con… • Total control - the owner is in charge of the business . He/she does not need to discuss their decisions with any other owners. They have total control of the business . • Privacy- As there are no shareholders in the business you only need to inform Inland Revenue and Customs and Excise in order for them to see how well the sole proprietor is doing • Flexibility- very flexible working hours as sole trader is its own boss. Rather than working on Friday he/she decides to work on Sunday instead. Abdulahi Abukar “ ABAJEY”

11. Disadvantages of Sole Proprietorships Disadvantages of Sole Trader: • Illness - If ill the business might be forced to shut down stopping the income and profits • Unlimited liability- if the things don’t work out as planned the sole proprietor could lose all its investment . • Lack of continuity- because the owner is the business there is no guarantee that the business will carry on running once the owner decided to stop . Abdulahi Abukar “ ABAJEY”

12. Con… Long hours- long hours may be required of the owner to keep the business afloat. • Difficulty in raising capital- small businesses find it hard to find a start up capital and usually the owner might have to put his/her house as an insurance for capital borrowed • Limited specialisation- as the owner has to be a purchaser , lorry driver and accountant there is no time for this person to specialise in all fields • Limited economies of scale- e.g. a small construction business would have to hire a lorry to do the required task as this would be cheaper but larger business would buy its own as this would prove to be cheaper owing to the fact that lorry is in continuous use. Abdulahi Abukar “ ABAJEY”

13. partnership What is partnership? Partnership is a type of business where 2 or more people agree to own, run and trade. Partnerships require a high degree of trust and are very common in fields such as medicine. Abdulahi Abukar “ ABAJEY”

14. Con… When setting up a business a person has to decide whether to set up a business on their own or with others. This will depend on: • How much control they want over the business • Are they prepared to share the profit • Can they raise necessary capital to start up the business by themselves • There is also a risk factor. Is this person prepared to accept the risk of unlimited ability? Abdulahi Abukar “ ABAJEY”

15. Advantages of partnership The advantages of partnership are: Easy to set up Solicitors and accountants are not required to run the business profits belong to the partners Privacy. Only tax authorities need to be told how much partners are earning and profit of the business Raising capital for the business is easier than that of sole proprietor Different expertise for partners e.g. specialises in accountancy whilst the other in marketing Abdulahi Abukar “ ABAJEY”

16. disadvantages of partnership The disadvantages of partnership: Disagreements between partners, which can be bad for business Some partnerships don’t have a action of partnership, which can be bad for business Most partnerships are relatively small businesses e.g. Shops, farms Some entrepreneurs are not willing to share responsibilities and profits or some entrepreneurs fear being held legally liable. Abdulahi Abukar “ ABAJEY”

17. Corporation A corporation (sometimes called a regular or C-corporation) “ Is Firm that meets certain legal requirements to be recognized as having a legal existence, as an unit separate and distinct from its owners” . Corporation is differs from a sole proprietorship and a partnership It can enter into binding contracts, buy and sell property, sue and be sued, be held responsible for its actions, and be taxed. Abdulahi Abukar “ ABAJEY”

18. Types of Corporations C-corporation : The C Corporation is the most common form of corporate body. Also known as a “General for profit corporation”, the C Corporation is owned by shareholders. The shareholders elect a board of directors to create and direct the high-level policies of the business. C-corporation the most common type of corporation. It protects the entrepreneur from being personally sued for the actions and debts of the corporation. Abdulahi Abukar “ ABAJEY”

19. Subchapter S-corporation: S Corporation is formed in the same way that a C Corporation is formed - the Incorporator files Article of incorporation with the state office. However, the S Corporation is different from a C Corporation. A corporation that is taxed like a sole proprietorship or partnership with each shareholder paying tax on the amount of their proportionate shares Abdulahi Abukar “ ABAJEY”

20. Nonprofit Corporation : A Nonprofit corporation is a special type of corporation that has been organized to meet specific tax-exempt purposes. To qualify for Nonprofit status, your corporation must be formed to benefit: (1) the public, (2) a specific group of individuals, (3) the membership of the Nonprofit. Examples of Nonprofits include: religious organizations, charitable organizations, political organizations, credit unions and membership clubs such as the Elk's Club or a country club. Abdulahi Abukar “ ABAJEY”

21. Advantages of Corporations Owners' personal assets are protected from business debt and liability Corporations have unlimited life extending further than the illness or death of the owners Tax free benefits such as insurance, travel, and retirement plan deductions. Transfer of ownership facilitated by sale of stock Change of ownership need not affect management Easier to raise capital through sale of stocks and bonds Abdulahi Abukar “ ABAJEY”

22. Disadvantages of Corporations Double taxation. Depending on the type of corporation, so income can be taxed twice. extreme tax filings. Depending on the kind of corporation, the various types of income and other taxes that must be paid can require a substantial amount. Independent management. If there are many investors having no clear majority interest, the management team of a corporation can operate the business without any real mistake from the owners. More expensive to form than proprietorship or partnerships More legal formality More state and federal rules and regulations Abdulahi Abukar “ ABAJEY”

23. MNC Abdulahi Abukar “ ABAJEY”

24. Multinational corporation A multinational corporation (MNC) has facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management. Very large multinationals have budgets that exceed those of many small countries. Abdulahi Abukar “ ABAJEY”

25. Top 10 Multinational Companies in The World 10. Autodesk Inc. Autodesk is an American MNC which produces software for architecture, drawings, engineering, construction etc. Founded in 1982, by John Walker, is headquartered at San Rafael, California, The company has employs over 9000 people. Abdulahi Abukar “ ABAJEY”

26. 9. Diageo: Diageo is a multinational company based in London, UK. It is an alcoholic beverage manufacturer. It is the largest producer of beer in the world. It has offices in around 85 countries and has market in 180 countries. It was founded in 1997. 8. W.L Gore and associates : This is an US based multinational company famous for the products it manufactures from fluoro-polymers. It has its headquarters in Newark, Delaware. It was founded in 1958 by Bill Gore. The company employs 12000 people. Abdulahi Abukar “ ABAJEY”

27. 7. FedEx: FedEx is a MNC courier service based from Tennessee, USA. FedEx is the acronym of Federal Express. The company was founded in 1971 by Frederick Smith. It is one of the largest employer in the world with over 300,000 employees. 6. Marriott: This again is a US based Multinational company based from Maryland. The company is specialized in hospitality services and has many 5-star hotels spread across different parts of the world. It was found in 1927 by the Marriott family. it employs around 200,000 people. Abdulahi Abukar “ ABAJEY”

28. 5. Microsoft: This is one of the most famous global software company, based that hails from Redmond, Washington. It was founded by Bill Gates and Paul Allen in 1975. employs 115,000 all over the world. 4. Kimberly-Clark Inc: This again is a US based company specialized in producing personal care products mostly paper-based products. It was founded in 1872 The company has about 45,000 employees Abdulahi Abukar “ ABAJEY”

29. 3. NetApp Inc: This is a US- based data management Multinational Company that is headquarter in California, United States. It was founded in 1992 by David Hitz , The company employs around 11,000 people worldwide. 2. Google Inc: The company is known for its internet-related services and online search, cloud and software. The company was founded by Larry Page and Sergey Brin in 1998 in Mountain View, California. It employs 57,000 people worldwide. Abdulahi Abukar “ ABAJEY”

30. 1. SAS Inc: SAS is the acronym for Statistical Analysis System. The company was founded in 1976 by Anthony James Barr. The headquarters is located in Cary, North Carolina. It is also the world’s largest Private software publisher. It has an annual turnover of around $3 billion and employs around 15000 people. Abdulahi Abukar “ ABAJEY”

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32. Quick Check Define : sole proprietorship Partnership Corporation MNC What are the Advantage and Disadvantage of all (Sole, Partnership and corporate) What are Unlimited Liability and Economies of Scale? Abdulahi Abukar “ ABAJEY”

33. Abdulahi Abukar “ ABAJEY”