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Business ownership refers to the number of people who own the business, the source of funding used to set-up and run the business, the degree of legal liability the owners face in the event of company debts and who has the opportunity to buy part ownership in the business. The main types of business ownership are:
Sole Proprietor
A sole proprietor or sole trader is a single person who owns and controls a business, although he or she may employ others in the business. That person provides all the capital for the business and receives all the profits. The proprietor is also personally liable for all debts incurred by the business. This means that if the business fails, the owner will have to come up with the money to pay the business debts, even if it means selling their home. A sole trader can operate under his or her own name or under a business name. A sole trader must register the business name with the state business affairs department. Sole traders typically include tradesmen, hairdresser, cafe and small shops.
Partnership
A partnership consists of two or more owners, who each provide the capital for the business and who share the profits, not necessarily equal. A partnership allows more funding to be provided and a broader range of skills to be contributed, which can both help the business to grow. All partners are also personally liable for all debts incurred by the business. Their liability is not limited to the capital they contributed. Partners are not legally required to have a formal written agreement. Partnerships often consist medical centres, legal practice and accounting firms for examples.
Company Overview
Due to the risk of proprietors and partnerships surrounding legal liability and the loss of personal assets if towards business debt, companies cover this aspect differently. A company is considered a separate legal entity from its owners. As a legal entity in its own right, the business can sue or be sued, hold property, be taxed and enter into contracts. Being a separate legal entity from its owners, if it goes broke the owners do not have to pay for the business's debts using their own personal finances. This is known as limited liability, that is, if the company fails, the owners and/or shareholders are only liable for the amount of capital they put into the company. Limited liability encourages investors as they know they will not be liable for huge debts if the company goes under.
A company is owned by its shareholders. Shareholders own part of the company because they have bought shares within it. The number of shares bought determines the percentage of the company that each shareholder owns. Shareholders share the profits, and elect the board of directors of the company. The board of directors makes major decisions that determine the company's direction, and it hires the company's management staff, who in turn are responsible for running the day to day operations of the business. You can read more on company structures from ASIC.
Private Company
A private company can have between one and 50 owners. Capital is provided by the shareholders (owners). Shares are not bought and sold on the stock exchange, so ownership is not available to the general public. Private companies are usually small, often family-owned. A proprietary limited(Pty Ltd) company has a maximum of 50 shareholders and is not listed on the stock exchange. Private companies are registered under the Corporations Law Act.
Public Company
A public company can have five or more owners. It has a board of directors that is elected by shareholders. The capital is provided by the shareholders. Shares are bought and sold on the Australian Stock Exchange (ASX). The benefit of public listing on the ASX is that a large number of shareholders can provide a large financial base for the company. An example of a public company is BHP Billiton Ltd.
Public Sector
Not something most will be concerned with, though these are more the Commonwealth, state and local Government organisations. Examples are Australia Post (Commonwealth level), Police (state level) and rubbish collection (local level). Typically public sector companies have not operated for profit, however; these organisations are pushed more nowadays to operate as a business and actually return profits or break even.
Not For Profit Organisation
A not-for-profit organisation receives capital from members and from donations. This type of organisations include charities, professional organisations, private clubs, credit unions, building societies and cooperatives.