Types of Business Organisation Ownership

Entrepreneur has a special role in a private sector to boost the country economic. Business create job opportunity and produce goods and services. The business organisation is defined as “the exchange of goods, services, or money for mutual benefit or profit” (Skinner & Ivancevich, 1992, p. 8). Customers pay money for obtaining goods and service and the traders need the profit for sustainable growth. In general, type of business organisation can be divided into sole proprietorship, partnership and corporation (refer to Figure 1 in Appendix 1).

The first type of business organisation ownership is sole proprietorship. According to Miller and Jentz (2012), sole proprietorship is a business possessed and controlled by single person. In fact, the owner merely needs little capital to start a business by his own such as bakery, grocery shop, burger vendor and restaurant. Miller and Jentz reported that all profit that generate from owner’s business will be taxed as personal income tax. Sole proprietorship has tax benefit compare with partnership which has tax from entity’s income. Moreover, sole proprietorship has several advantages and disadvantages. According to Skinner and Ivancevich (1992), sole proprietorship makes it easier to start the business individually. For example, the registration procedures are simple and easy for establishing a burger stall. The owner also has complete control over the business (Cunningham, Aldag, & Block, 1993). Sole proprietor has the freedom in making the business decision and terminates their business immediately. The decision making of whether to shut down their business depends on the financial performance of the business. Another advantage of sole proprietorship is the business profits are wholly owned by the owner (Skinner & Ivancevich, 1992). The profit gained is based on his effort. On the other hand, Miller and Jentz states that “the sole proprietor has unlimited liability or legal responsibilities for all obligation incurred in doing business.” (p. 681). The owner has responsibility to settle all the business debt and problems. The disadvantage of sole proprietorship is it will be difficult to raise capital because of personal wealth limitation (Skinner, & Ivancevich, 1992). Skinner and Ivancevich mentioned that, in the view of limited life and personal saving of sole proprietor, the banks and the financial institutions hesitate to permit the long term loan to the owner to expand his business. Based on Cunningham et al. (1993), they suggested that sole proprietorship is unstable in business when the owner is sick, death or bankrupt. Ultimately, the business need to terminate as the owner is unable to operate the business.  

Partnership is the second type of business. Unlike sole proprietorship which has only one owner, partnership owns two or more partners in the business. The partners are voluntary bind into agreement to share their income, credibility and liability together. Apart from that, the business gains or losses are divided precisely among the partners (Mallor, Barnes, Bowers, and Langvardt, 2007). According to Shukla (1952), all partnership members have equal rights on business conduct and management decisions making by law. For example, partners have the rights to take part in every business decisions. The sole proprietorship and partnership have the similarity of unlimited liability. This is mentioned by Bovee and Thill (2013) in which partnership is suffering unlimited liabilities when business loss incurred. Business debts are equivalent to partner's debts (Dias, & Amit, 2009). Thus, all partners have to bear full responsibilities to repay debts. Dias and Amit (2009) said that all the partners are obligated in the tort law cases in the ordinary course of business that committed by any other partners. For instance, partners are liable to repay more than his contribution of capital if the business total assets are inadequate to settle the claims of its creditor. Mallor et al. (2007) found that, partnership is not accounted as an entity that obliged to pay tax for federal income tax purposes. Instead, Mallor et al. claimed that the income of partnership is being taxed as individual partner’s federal income tax return and they enjoy unlimited deductible for any business loss incurred. Tax treatment indicates that the partnership do not possess tax liability engagement but it serves as an entity that pass through all the business income to be distributed to the partners who liable on tax paying. Tax treatment for partnership of any business gains or losses is credited to the members of partnership on their individual tax returns (Shukla, 1952). On the contrary to sole proprietorship, the life span of partnership is uninfluenced by decease or termination of partner as stated by Mallor et al. They believe that the entity of partnership will continue operate even one of the partners is death or withdraws. For example, even though the co-founder of accounting firms PricewaterhouseCoopers, Mr. Samuel Lowell Price had died many years ago, the firm still exist and continues running (Bovee, & Thill, 2013). Besides that, Mallor et al. add that the interest of partnership is not transferable to any buyer of interest unless the members of partnership declare that buyer is one of the partners. Therefore, partnership is one of the business form that ease to build up with an agreement of two or more owners to conduct business by signing the partnership agreement which called articles of partnership (Shukla, 1952).