Business
ownership
Every type of business has to choose an ownership structure. Although there are
variations globally, most countries offer similar types of legal entities, from a single-
person private enterprise to a massive organization trading on a stock exchange.
There are three key considerations: how big the venture is expected to grow; the
complexity of financial recording, management, and reporting that the proprietor
is willing to take on; and the amount of liability the owner is willing to accept.
A sole proprietorship
or partnership is simple
to set up and requires
little capital.
One or more owners
conduct business as
a legal entity.
Owners are personally
liable for business debts.
See pp.14–15.
More complex to set
up and run, a private
company is a legal entity
separate from its owner
or owners.
The company structure
means the owners are
not usually personally
liable for business debts.
Private companies are
owned by shareholders,
who are often the
company’s managers.
See pp.16–19.
Companies that go public
are large businesses, and they
have many legal and financial
reporting obligations.
The general public and other
institutions can buy shares in
public companies.
The public company structure is
good for a major capital injection,
allowing the business to expand.
See pp.16–19.
Small and simple
Private
companies
Public companies
US_012-013_Business_Ownership_Overview.indd 12 15/12/2014 12:54
12 13
How companies work
Business ownership
NAMING A COMPANY
7%
of global economic
activity is accounted
for by the world’s
100 largest companies
For both growth and flexibility,
multinationals have operations
in various countries.
Multinationals can save money by
setting up operations in countries
where costs are cheaper.
Foreign branches can adapt to
the local market and also find
new markets. See pp.20–21.
In this model, a business (the
franchisor) authorizes a franchisee
to set up a branch under its name,
in return for a fee.
The franchisor needs less capital
than it otherwise would to
develop a business.
The franchisee takes on a known,
successful business model and
name, so minimizing risk.
See pp.22–23.
Common nonprofit
organizations include
charities and trade
associations.
Their organizational
structure is similar to
that of a company.
They may generate
substantial sums of
money, but plow it back
into beneficial causes
rather than distributing
profits. See pp.24–25.
Multinationals
Franchises
Nonprofit
sector
Do
Use a domain suggestion
tool to search for available
internet domain names and
work back from there.
Be descriptive so potential
customers instantly grasp the
nature of the business.
Say the name out loud—it
may come across differently
from the written word. The
goal is that people can search
and find it, especially online,
just from hearing it.
Keep it short and simple and
avoid puns.
Don’t
Include your name—if the
venture fails, your name will
be associated with it.
Ape competition, because
if your name is unique, you
have a better chance of
topping search-engine results.
If your name is similar to that
of competitors, customers
can’t distinguish.
Spend time thinking of a
name until your product and
brand is finalized. Get the
product right first and the
name will follow naturally.
US_012-013_Business_Ownership_Overview.indd 13 15/12/2014 12:54
12 13
How companies work
Business ownership
NAMING A COMPANY
7%
of global economic
activity is accounted
for by the world’s
100 largest companies
For both growth and flexibility,
multinationals have operations
in various countries.
Multinationals can save money by
setting up operations in countries
where costs are cheaper.
Foreign branches can adapt to
the local market and also find
new markets. See pp.20–21.
In this model, a business (the
franchisor) authorizes a franchisee
to set up a branch under its name,
in return for a fee.
The franchisor needs less capital
than it otherwise would to
develop a business.
The franchisee takes on a known,
successful business model and
name, so minimizing risk.
See pp.22–23.
Common nonprofit
organizations include
charities and trade
associations.
Their organizational
structure is similar to
that of a company.
They may generate
substantial sums of
money, but plow it back
into beneficial causes
rather than distributing
profits. See pp.24–25.
Multinationals
Franchises
Nonprofit
sector
Do
Use a domain suggestion
tool to search for available
internet domain names and
work back from there.
Be descriptive so potential
customers instantly grasp the
nature of the business.
Say the name out loud—it
may come across differently
from the written word. The
goal is that people can search
and find it, especially online,
just from hearing it.
Keep it short and simple and
avoid puns.
Don’t
Include your name—if the
venture fails, your name will
be associated with it.
Ape competition, because
if your name is unique, you
have a better chance of
topping search-engine results.
If your name is similar to that
of competitors, customers
can’t distinguish.
Spend time thinking of a
name until your product and
brand is finalized. Get the
product right first and the
name will follow naturally.
US_012-013_Business_Ownership_Overview.indd 13 15/12/2014 12:54
Firm Collective term for
individuals in a partnership
Limited liability partnership
(LLP) Partners not personally
accountable for business debts
NEED TO KNOW
How it works
Many businesses start out as the most
basic unit—either a sole proprietor or
a partnership. A sole proprietor is an
individual who is the only owner of
the business. This structure is easy to
set up and there are no extra taxes to
pay, unlike with a company. Instead,
the sole proprietor files a personal tax
return. There is risk attached, though.
A sole proprietor has unlimited liability,
so if the business fails, the owner must
personally pay debts. Partnerships have
more than one owner, and each can be
held liable for the whole debt of the
business in case of failure.
The simplest business structures are those formed by one person as a
sole proprietor, or by two or more people as a partnership, for commercial
activity. Many cost little to set up and some are easy to run.
Sole proprietorships
and partnerships
Unlimited liability:
business debts
paid personally
Tax-efficient
way to be
self-employed
Simple
registration
process
Easy to move from
sole proprietor to
company status
Little
capital
needed
Schedule C
filed with IRS
Form 1040
Keep all business
profits after paying
tax on them
Sole proprietorship
Working alone requires only
simple administration and
relatively few start-up costs.
Pros and cons
Both sole proprietorships and
partnership structures are excellent
for anyone starting out or running
a small business—as long as the
business stays out of debt: owners are
personally liable for business debts.
Trade under own
name or chosen
business name
$
$
$
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14 15
how companies work
Business ownership
If the need for capital
increases (and potential
debts grow), forming
a company may be
beneficial. See pp.16–17.
WHEN TO MOVE TO
COMPANY STATUS
66%
of EU private
sector jobs are in
small or medium-
size enterprises
Sole proprietorships and partnerships
may grow into global names.
Richard Branson Sole proprietor-
ship that expanded into Virgin empire
Steve Jobs and Steve Wozniak
Partnership that created Apple brand
Bill Hewlett and David Packard
Partners who founded HP technology
John D. Rockefeller, William
Rockefeller, Henry Flagler, Jabez
A. Bostwick, Samuel Andrews,
Stephen Harkness Partnership that
grew into Standard Oil corporation
FROM INDIVIDUAL
TO MULTINATIONAL
Option to set up a
limited liability
partnership
Allows for
specialization by
each partner
Furnish Schedule
K-1 (IRS Form
1065) to partners
More partners
mean more capital
and expansion
New partners
bring new
business skills
Profit and
control of the
business shared
Each partner
pays tax on own
portion of profit
If partner leaves,
new partnership
needed
Partnership
Like sole proprietors, partners
file only personal tax returns
and are liable for business debts.
$
$
US_014-015_Sole_Traders_and_Partnerships.indd 15 02/12/2014 14:56
14 15
how companies work
Business ownership
If the need for capital
increases (and potential
debts grow), forming
a company may be
beneficial. See pp.16–17.
WHEN TO MOVE TO
COMPANY STATUS
66%
of EU private
sector jobs are in
small or medium-
size enterprises
Sole proprietorships and partnerships
may grow into global names.
Richard Branson Sole proprietor-
ship that expanded into Virgin empire
Steve Jobs and Steve Wozniak
Partnership that created Apple brand
Bill Hewlett and David Packard
Partners who founded HP technology
John D. Rockefeller, William
Rockefeller, Henry Flagler, Jabez
A. Bostwick, Samuel Andrews,
Stephen Harkness Partnership that
grew into Standard Oil corporation
FROM INDIVIDUAL
TO MULTINATIONAL
Option to set up a
limited liability
partnership
Allows for
specialization by
each partner
Furnish Schedule
K-1 (IRS Form
1065) to partners
More partners
mean more capital
and expansion
New partners
bring new
business skills
Profit and
control of the
business shared
Each partner
pays tax on own
portion of profit
If partner leaves,
new partnership
needed
Partnership
Like sole proprietors, partners
file only personal tax returns
and are liable for business debts.
$
$
US_014-015_Sole_Traders_and_Partnerships.indd 15 02/12/2014 14:56
How it works
A corporate structure protects management and
workers in the case of litigation or other claims. It is,
however, a more complex structure and subject to
greater regulation than the simpler business entities of
sole proprietorships and partnerships. A corporation is
owned by one or more stockholders, and is managed
by a board of directors and run by the company’s
officers, who are appointed by the board of directors.
The company retains any profit made and may
Corporations
A corporation is a business entity considered distinct from its
employees and shareholders. The primary purpose of forming a
corporation is for shareholders to avoid personal liability.
distribute part of it to the stockholders in the form of
dividends. Corporate and securities laws regulate
the sale of shares. Legally, the stockholders cannot
be held liable for the company’s actions and debts.
Publicly traded
company
A publicly traded company is
usually a large business—such
as a technology company—
with stock traded on a stock
exchange, such as NASDAQ.
Public characteristics
Issues securities through an Initial Public Offering (IPO)
Can sell future equity stakes
Has greater access to financing
Must meet reporting requirements set out by Securities
and Exchange Commission (SEC)
Reduced control for initial owners
Types of incorporation
Anyone who operates a business may incorporate by registering articles
of incorporation. General incorporation (C Corporation) is the most
common structure. An S Corporation, created through IRS tax election,
provides limited liability; it is favored by small businesses because it
combines the advantages of sole proprietorship, partnership, and the
corporate forms of business structure. Nonprofits can also incorporate.
Stockholder An individual, group,
or organization that owns shares
in a company
Doing business as (DBA) Operational
rather than company name
Professional corporation (PC)
Corporate form used for primarily
for doctors, lawyers, and similar
professional service providers
NEED TO KNOW
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16 17
How companies work
Business ownership
56.5%
of UK limited
companies have
employees; the
remaining 43.5%
are single-member
companies (SMCs)
CANADIAN
COMPANIES
Privately held
company
In a privately held company,
a limited group of private stock
owners controls the company.
These companies do not offer
shares to the general public on
stock exchanges.
Private characteristics
May issue stock and have shareholders. Shares,
however, do not trade on public exchanges
Management is not required to file disclosure
statements with the SEC
Dependant on private funding
Businesses in Canada can
be sole proprietorships,
partnerships, or
corporations. A business
can also be run as a
cooperative, a business
that is owned and
controlled by its
members. Canadian
companies must
register in the province
or territory in which
they are domiciled.
A limited liability company (LLC) is a hybrid between a corporation
and a partnership. The upside of an LLC is that it offers many
of the advantages of a corporation, but is cheaper to create
and maintain. Taxation rules vary, depending on the Articles of
Organization of the LLC. Laws also differ from state to state. A
limited liability company is an “LLC,” not an “Inc.” or “Corp.”
LIMITED LIABILITY COMPANIES IN THE US
Corporations operate as legally
and financially independent
entities. They may be publicly
traded or privately held.
Corporation
US_016-017_Limited_Companies-new.indd 17 15/12/2014 12:54
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