Ownership structures refer to the legal structures of the business entity. This includes the internal entities, the rights, and the duties granted to the business owner. Ownership structures often change as the business grows and generate income. A business owner takes the responsibility of choosing the legal form that identifies the business. The ownership structure provides a guide and outline of the business structure concerning an organization’s ownership, leading, and control. The ownership structures include sole proprietorship, partnership, corporation, limited liability company, and cooperative. These different ownership structures have a wide range of impacts on the firm performance (Rashid, 2020). The impacts of varying ownership structures are discussed below;
Sole proprietorship.
A sole proprietorship is a business that has single ownership. The activities in the business are controlled by an individual, a single company, or a limited liability partnership. The Decision-making process and the activities pertaining to the business involve the proprietor alone. In this type of ownership, no legal entities or formalities are needed for the running of the business (Kasahun, 2020). These types of businesses are always small firms that have unlimited liability. The owner of the business, the sole proprietor, always gets to enjoy the profits acquired alone and also suffers the risks in the business alone. In working, the owner of the business is not restricted to working alone but can employ people to work with. The effects of Sole proprietorship on the firm performance include the decision-making process. The process of making decisions in a sole proprietorship structure is fast and easy to implement. This consists of the fact that no consultation is required making it easy to implement decisions leading to the more rapid growth of the business. Examples of sole proprietorship businesses are small-scale businesses such as local grocery stores, small clothing stores, a single artist, and small local designers.
Limited liability company.
This company is a type of ownership business structure that involves a corporation and partnership. This type of ownership structure includes having one or more owners of the business. The owners of the business are characterized by limited liability, and they are referred to as the members of the business. One member of the team takes responsibility for the management, and in this case, the member is referred to as the manager. To work on the agreement and membership, the owners participate in the filing of documents with authority for the business to be effectively authorized (Zraiq and Fadzil, 2018). This type of ownership structure is associated with private companies owned by more than one person. The company members are not individually responsible for the company’s debts. The impact of a limited liability ownership structure includes the fact that the firm secures a chance to generate high profits. The members of a limited liability company receive more enormous revenues from the business, which they can use to expand the business and incur more profits. Examples of limited liability companies include IKEA limited, Mcdonald’s, and Tesco.
Partnership ownership.
A partnership ownership structure involves two or more individuals coming together to start a business together. To develop a partnership, owners who are the partners are required to register with the state secretary. In cases where there are joint ventures, the business can be considered a partnership. These types of businesses are established through contributions from the members involved in relation to the type of partnership intended to be formed. Partnership agreements help to build a relationship between the members. Partners get into signing a contract that gives different business aspects that will guide the partnership. These aspects include how to run the business, the sharing of profits, and guidelines to be adopted in case there is dissolution. Partnership ownership increases firm performance as it provides opportunities for connections and the building of knowledge that facilitate the effective running of the business (Iwasaki and Mizobata, 2022). The shared knowledge builds the business operation and secures the future for business improvement and growth. The partnership facilitates more cash generation as the combined knowledge of the partners facilitates cost savings and a wide range of expertise for the goal and objective achievement of the business. Nike and Apple, Starbucks and Spotify, Burger King and Mcdonald’s are among the examples of successful partnership structured business.
Corporation ownership.
When different shareholders invest in a business through buying of shares, the business owner is referred to as a corporation. Shareholders or stockholders own the company shares, which is not limited to how many shares one needs to have in the business. In this type, the percentage of stock held by the shareholder outlines the portions of a corporation owned. Owning the corporation does not give the shareholders the right to engage in the daily running of the business. Management in this ownership structure is conducted through voting in the board of directors to facilitate the running of the business. The impact of the corporation on a firm includes increasing business security. Corporation ownership provides business liability continuity which ensures business continuity and protects the access to capital for the firm. Examples of corporation firms include Coca-Cola company. Toyota company, Sony, and Microsoft.
Cooperative Ownership.
A cooperative structure involves the association of individuals who voluntarily unite to meet economic, social, and cultural needs (Grashuis, 2019). Business cooperatives are owned and managed by individuals who engage their services and goods. The membership and leadership of this type of business ownership are conducted through democracy, where members vote for the board members. The earnings and the profits incurred in this business are shared equally among the members of the cooperative. Members of the business share equal responsibilities to enhance the running of the business. Cooperative ownership enables a firm to secure high profits through the process of involving community ownership of businesses. This increases local spending in the community attracting high sales in the business hence increasing profits (Abdullah, 2018). For example, agriculture cooperatives, housing cooperatives, and credit unions contribute to the general types of cooperative ownership business structures.
In summation, ownership structures are important in businesses. Effective implementation and engagement of an effective ownership structure increase firm performance. Sole proprietorship, partnership, limited liability company, corporation, and cooperative ownership structures help the firm grow, increase firm security, improve firm efficiency, increase profits acquired, and a firm gets to experience continuity effectively.
References
Abdullah, T.T.Y., 2018. The relationship between ownership structure and firm financial performance: Evidence from Jordan. Benchmarking: An International Journal.
Grashuis, J. and Su, Y., 2019. A review of the empirical literature on farmer cooperatives: Performance, ownership and governance, finance, and member attitude. Annals of Public and Cooperative Economics, 90(1), pp.77-102.
Hoekstra, F., Mrklas, K.J., Khan, M., McKay, R.C., Vis-Dunbar, M., Sibley, K.M., Nguyen, T., Graham, I.D. and Gainforth, H.L., 2020. A review of reviews on principles, strategies, outcomes and impacts of research partnerships approaches: a first step in synthesising the research partnership literature. Health Research Policy and Systems, 18(1), pp.1-23.
Iwasaki, I., Ma, X. and Mizobata, S., 2022. Ownership structure and firm performance in emerging markets: A comparative meta-analysis of East European E.U. member states, Russia and China. Economic Systems, p.100945.
Kasahun, A.K., 2020. The Impact of Working Capital Management on Firms’ Profitability-Case of Selected Sole Proprietorship Manufacturing Firms in Adama City. Journal of Economics and Finance, 11(1), pp.45-55.
Rashid, M.M., 2020. Ownership structure and firm performance: the mediating role of board characteristics. Corporate Governance: The International Journal of Business in Society, 20(4), pp.719-737.
Yeh, C.M., 2019. Ownership structure and firm performance of listed tourism firms. International Journal of Tourism Research, 21(2), pp.165-179.
Zraiq, M.A.A. and Fadzil, F.H.B., 2018. The impact of ownership structure on firm performance: Evidence from Jordan. International Journal of Accounting, Finance and Risk Management, 3(1), pp.1-4.
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