Business Studies: Forms of Business
Revision Notes
Business Studies Revision Notes: Forms of Business Ownership for High
School and College Students (Explained simply)
FORMS OF BUSINESS
Introduction to Business Ownership.
This refers to a legal structure stating the persons who own, operate, manage,
and are accountable for a business.
The persons should be able to choose the correct form of business because it
defines tax obligations, legal liabilities, controlling management, ability to raise
capitals which ultimately defines the company’s long-term success.
Importance of choosing the right form of Business Ownership?
It protects liabilities from business debts that can take place in the future.
It helps to identify the form of business with favorable taxation clauses.
Business owners can have full control of the business and can make proper decisions by
choosing a suitable form of business.
Choosing the positive form of business increases, the chances of getting funds from different
banks with favorable interest rates and investors.
The correct form of business can have a much longer life span and survive harsh
environments.
Factors affecting the choice of a good form of business ownership
Things to put on consideration before coming up with a business form.
Business liability that determines the riskiness of the owner’s assets.
Capital availability that is required to start and run a business.
The cost incurred to set up, maintain the structure, and obtain legal formalities of a
business.
Business management where the owner has to decide who can control the business by
either sharing it with a board or partners.
Tax implications where increased tax affects the business negatively.
Scale of operations has to be determined by the business owner to choose which form of
business to ventures in.
There are different types of business forms. These include:
a) Sole proprietorship
1
, Business Studies: Forms of Business
Revision Notes
This is normally managed and operated by one person as it is simple, usually small in size,
with a non-complex structure, and zero legal distinctions between the owner and the
business.
Ownership and management of a sole proprietorship form of business.
It is usually owned by a single person known as a sole trader or entrepreneur.
The sole trader is the one with full control of the business, makes decisions, and manages
the daily activities of the business.
Main characteristics of Sole proprietorship
It can be easily formed as it has less legal formalities.
Business owners enjoys all profits gained.
It can collapse anytime if the owner dies, declared bankruptcy, or even depletion of stocks.
Has zero legal distinctions.
Business income tax is included to the owner’s personal return tax.
Advantages of Sole proprietorship
The owner has the full control of the business
Sole proprietors enjoy the profits obtain from the business.
This form of business is easy to form and manage.
It is flexible.
Its tax return is included in the owner’s personal return tax.
Disadvantages of a Sole proprietorship
Personal assets are at high risks.
Difficulty in raising enough capital or gat banks loans to start and run a business.
The business has no promising future as it can cease easily if the owner dies or declared
bankruptcy.
Overburden to the business owner as he/she hold full responsibilities of the business.
The owner bears the loss incurred in the business alone.
Examples of Sole proprietorship businesses
Small local businesses like kiosks, coffee shops
Contractors who work independently like masonries, plumbers,
Writers, coaches, entertainers, comedians
Partnership
2
Revision Notes
Business Studies Revision Notes: Forms of Business Ownership for High
School and College Students (Explained simply)
FORMS OF BUSINESS
Introduction to Business Ownership.
This refers to a legal structure stating the persons who own, operate, manage,
and are accountable for a business.
The persons should be able to choose the correct form of business because it
defines tax obligations, legal liabilities, controlling management, ability to raise
capitals which ultimately defines the company’s long-term success.
Importance of choosing the right form of Business Ownership?
It protects liabilities from business debts that can take place in the future.
It helps to identify the form of business with favorable taxation clauses.
Business owners can have full control of the business and can make proper decisions by
choosing a suitable form of business.
Choosing the positive form of business increases, the chances of getting funds from different
banks with favorable interest rates and investors.
The correct form of business can have a much longer life span and survive harsh
environments.
Factors affecting the choice of a good form of business ownership
Things to put on consideration before coming up with a business form.
Business liability that determines the riskiness of the owner’s assets.
Capital availability that is required to start and run a business.
The cost incurred to set up, maintain the structure, and obtain legal formalities of a
business.
Business management where the owner has to decide who can control the business by
either sharing it with a board or partners.
Tax implications where increased tax affects the business negatively.
Scale of operations has to be determined by the business owner to choose which form of
business to ventures in.
There are different types of business forms. These include:
a) Sole proprietorship
1
, Business Studies: Forms of Business
Revision Notes
This is normally managed and operated by one person as it is simple, usually small in size,
with a non-complex structure, and zero legal distinctions between the owner and the
business.
Ownership and management of a sole proprietorship form of business.
It is usually owned by a single person known as a sole trader or entrepreneur.
The sole trader is the one with full control of the business, makes decisions, and manages
the daily activities of the business.
Main characteristics of Sole proprietorship
It can be easily formed as it has less legal formalities.
Business owners enjoys all profits gained.
It can collapse anytime if the owner dies, declared bankruptcy, or even depletion of stocks.
Has zero legal distinctions.
Business income tax is included to the owner’s personal return tax.
Advantages of Sole proprietorship
The owner has the full control of the business
Sole proprietors enjoy the profits obtain from the business.
This form of business is easy to form and manage.
It is flexible.
Its tax return is included in the owner’s personal return tax.
Disadvantages of a Sole proprietorship
Personal assets are at high risks.
Difficulty in raising enough capital or gat banks loans to start and run a business.
The business has no promising future as it can cease easily if the owner dies or declared
bankruptcy.
Overburden to the business owner as he/she hold full responsibilities of the business.
The owner bears the loss incurred in the business alone.
Examples of Sole proprietorship businesses
Small local businesses like kiosks, coffee shops
Contractors who work independently like masonries, plumbers,
Writers, coaches, entertainers, comedians
Partnership
2
