Types of Business Ownership and Recommendation for IOM Solutions

This report discusses the different types of business ownership, including sole proprietorship, partnership, limited liability partnership, limited liability company, and corporation. It also provides a recommendation for the most suitable organization type for IOM Solutions, which is partnership. The report highlights the benefits and drawbacks of each type of business ownership and their legal consequences.

Business law

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
TASK- Types of business ownership..............................................................................................3
Recommendation of the most suitable organization type for IOM solutions..............................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Management, nature and formation of business plays a vital role whenever business
owner wants to expand the business operations. It is beneficial for owners to focus on what type
of business ownership is appropriate for them. The present report is based on the Sam who
operates as a sole trader in IOM solutions, which is a company selling electrical parts to local
garages. It has been 8 years, From hard work and potential efforts Sam has achieved growth in
terms of employees and demand. So, to enhance this opportunity, Sam decided to expand the
business. In order to provide appropriate form of business ownership, the report is going to
outline some important and suitable ownership for IOM solutions. In addition to this, the study
will also highlight about legal consequences for each option available. Furthermore, the study is
going to draw some recommendation of the most suitable type of business organization for IOM
solutions.
TASK- Types of business ownership
for growing business in this competitive world, every business owner think about
choosing right and appropriate type of business ownership for its business. So, it is essential for
them to choose an ownership structure that can support goals related to company. Whenever
business choose structure then company must consider some important elements like financing,
taxes, liability and control (Hong, 2022). Taking these elements into consideration company can
easily achieve its goals and set objectives. In order to reorganise IOM solutions, Here are types
of business ownership and classification:
 sole proprietorship
This is the most commonly used ownership in this business environment, basically it is a
structure of business that has not filed any kind of paperwork to create a legal entity. It is run by
one individual and costs to create this business are very low. In addition to this, only few
formalities is required to form this type of business organization (Hatammimi, Adnyani and
Kinasih, 2022).
Advantages- the costs which is required to establish this business is low. The owner is
the one who has control over the business operations and activities. There is no interfere of
others as owner is the one who make decisions about the business activities.
Disadvantages- financial risk is one the major drawback of this type of business
ownership. If any legal risk occurs, owner is the one who will have to bear loss. If business hits a

rough patch financially, then personal assets like cars, bank accounts and others can be seized to
satisfy claims by creditors.
Legal consequences
Talking about its legal consequences when a sole proprietor dies, so does the company.
Due to this all the spouse or child of owner needs deal with taxation issues.
 Partnership
This is also one of the most popular business ownership type, which is also known as
general partnership. Nowadays, people like to work in partnership to run business smoothly with
support of each other. Two or more than 2 people in the business work together to achieve a
profit. As more than one person is involved in this form of business ownership, little formality is
needed to be taken into consideration. So, to form this business organization partnership
agreement should be created effectively (Uyesi and Ilkay, 2022). All the detailed information
must be included in this agreement such as loss and profit sharing, management rights and
percentages of ownership.
Advantages- partnership allow their business owners to participate in the business
directly and also allocate control and profits on the basis of their own wishes. On the basis of
numbers of partners, they can easily run business in a smooth manner. The main benefit of using
this type of business is lack of formality as compared to other firms.
Disadvantages- the major drawback include legal liability and risk related to financial
risk. Similar to sole trader, this business ownership open the partners up to legal liability for the
operations of business. All the partners are personally liable for liability and debt of business
which can sometime leads to management issues. Speaking about its legal consequences, when a
combination of partners is likely to be able to contribute more capital as compared to other
business entity like sole trader, partnership will still find it more difficult as well as complex to
raise money than a limited company which sometimes creates legal issues and conflict.
 Limited liability partnership
Basically it is a separate legal entity, this type of business organization is established on
some facts pertaining to liabilities, it is partnership in which all or some partners have liabilities
in a limited manner.
Advantages

The best thing about this LLP is that no minimum capital and contribution is required to
establish it (Qin, Luo and Wang, 2022). As we all know that LLP need 2 partner minimum but
there is no limit on the maximum numbers of partners work in the entity. Another best way about
this business organization is that it does not have more cost of registration. As compared to other
business organization like private and public, LLP has lower registration cost and no requirement
of compulsory audit.
Disadvantages
The major drawback of this business organization is that high income tax rate. When the
business owner think about establishing this entity they should must understand that they have to
pay high income rate. Another drawback of this entity is that owners have to file form 11 or 8, if
they fail then they have to pay penalty of 100 per day. Sometime it can go high and could run
into lakhs If in case the time limit exceed and not filed its annual return for a few years. Legal
consequences of this entity includes profit can not be retained in the similar way as the firm
limited by share which can created legal complications while establishing it.
 limited liability company
This type of business ownership is newly set up hybrid business structure that is now
permissible in most states. Talking about its features it is effectively designed to provide limited
liability features of a corporation. Basically, it is the mixture of both corporation and partnership
type of business organization. This business organization is mostly used by start-up business.
Advantages
whenever business owner form this ownership, they create a separate legal entity with its
obligations and assets. The best thing about this entity is that its flexible nature. In this business
organisation flexibility is maintained. The members of this entity have many types of options
available for the structure of management. The another major benefit of using LLC is
management flexibility, which means that members in this company share day to day decision-
making.
Disadvantages
If business owner choose this business organization they have to pay administrative costs.
This requires fees and owners must need to update themselves in terms of software and support
to complete activities of business. The business owners need to take extra guidance from experts,
they need extra legal and financial expertise to ensure success. This expense add to the

administrative costs. If owners of Llc fails to pay fees and taxes they have to deal with legal
issues and go through some consequences. As we all know owners in LLP always think to avoid
double taxation, sometime they mess up during taxes and does not follow regulations which can
create legal issues for them. Though LLC benefit by avoiding double taxation, they are required
to make payment relating to taxes like self employment.
 Corporation
this is the most complex form of business organisation. The internal operations and
formation are governed by state law. This type of entity is established to earn profit under the
laws of one state. Basically, it is a business entity that is owned by its shareholders who elect a
BOD to keep track on the activities related to company. It has been said that when the owners
decided to use this type of business organisation then they must know the fact that corporation is
liable for finances and actions relating to business but shareholders are not.
Advantages
The best thing about this entity is that it has limited personal liability, which opens a
different door for owners such as business continuity, easy transfer of ownership and better
access to capital of business. It has perpetual existence and also capital of business can be raised
by selling out securities and stocks.
Disadvantages
Talking about its major drawback, it is most expensive business entity as compared to
others. There is a higher level of governance and oversight by the company's BOD. The process
of corporation is time-consuming, also have to double taxation, if owners does not follow proper
formalities and protocols then they may face legal issues (4 Types of Business Structures — and
Their Tax Implications, 2022).
Recommendation of the most suitable organization type for IOM solutions
as we all know that in today's business environment, every business start out as sole
proprietorship or sole trader. This is one of the simplest form of ownership for a sole owner and
requires little formalities to establish it (Xu and Zeng, 2021). Which type of business
organization is the best suitable for business is totally depended on a number of factors which
includes structure of business, type, management, number of owners and taxation and liability.
As Sam is already running its business as sole trader for IOM solutions and now wants to expand

its business in order to attract customers and make good market position, it is recommended to
use partnership business type.
The reason behind choosing this partnership type is that it is very much easy to create, the
process through which business owner needs to proceed further is very simple and easy
(Goldberg and LeClair, 2022). Personal financial and legal liability protection is offered by
limited partnerships as well as limited liability partnerships. It is the most straightforward type of
business organization which is the main reason of choosing this.
Speaking about its main benefits the business partnership model helps people to go into
the business with someone else like two or more than two partners. However, by choosing this
business type owners may lose control of direction related to business operation as many people
are involved in decision-making process. While implementing this business type it is very
essential to take all drawbacks into consideration. Talking about its drawback, when business use
this type of organization they should understand that partnerships may not shield all personal
liability as it is depended on the business structure and specific business operations (Fakiha,
2021). Discussing about its accounting process, it is very simple as compared to limited
companies. This type of business organisation does not need to complete a procedure called
corporation tax return, however partners need to keep record of expenses and income pertaining
to business. Every partners must need to file their own self assessment tax return to avoid any
kind of future complications. This tax return must be submitted to HMRC and in their self
assessment tax return they need to include details about their profits as well as other income
details. As we all know that growing technology has also provided support to business type. The
partners in partnership business type will easily register their self assessment online to save their
time as well as energy.
CONCLUSION
To conclude, for formation of new business it is very important for business owner to
choose the right type of business ownership. From the above report it has been evaluated that
there are many types of business organisation which must be taken into consideration by
businesses. The report has highlighted about partnership, sole proprietorship, LLC, LLP and
corporation. It has also summarized that Choosing from these business type will help businesses
to achieve their goals and objectives. Along with information about type of business ownership it

has also highlighted about their benefits as well as drawback from which IOM solutions has
decided about the right type of business organization. The chosen business type is partnership,
the benefit of using this type is that partners can gain benefit from mutual support and
companionship. However, starting the business alone and expanding it can feel overstressed, so
in partnership IOM solutions can easily work together and gain profits.

REFERENCES
Books and Journals
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structure: the donor-investor organization. Journal of Sustainable Finance &
Investment, pp.1-11.
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Creative Industry in an Emerging Market. Asia Proceedings of Social Sciences. 9(1).
pp.127-128.
Hong, J. H., 2022. Business Organization. In Historical Statistics of Korea (pp. 951-981).
Springer, Singapore.
Javillonar, M. G., Boni, G. J. and Aniar, D. O., Analysis of Leadership Styles and Socio-Cultural
Diversity in a Business Organization: Gear toward a Better Workplace.
Qin, S., Luo, W. and Wang, Y., 2022. Policy uncertainty and firm-level investment: Evidence
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Uyesi, Y. Y. and Ilkay, N. Y., 2022. The effect of investment incentives on the business
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Online
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