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Business Ownership Terms

March 6, 2021

Business ownership comes in several models. This overview is not complete, but is a good start for you to do more research if you’re thinking of becoming an entrepreneur. Some of these terms overlap. For example, you can have sole ownership of an online business, or share partnership of a high-growth start-up.

Sole ownership or proprietorship. Sole ownership allows you to maintain control and get all the profits (after paying taxes and vendors). Sole ownership means you are in control, which means you oversee every aspect of the business. The down side: there is no distinction between you and your business. If someone sues your business, you are personally responsible. Handling every aspect of a new business can be overwhelming.

Partnership. In a partnership, two or more people share the ownership. A partner can help make decisions, offer complementary skills, and invest money. A partnership can be beneficial but it has some drawbacks. Partnerships should have a partnership agreement that clarifies the roles and responsibilities of each partner, and how costs and income will be shared.

Franchise. A franchisor expands a business by allowing you (the franchisee) to lease it for a period of time. A franchisee usually pays the franchisor start-up and annual licensing fees. A franchise is a popular way to start a business. One of the big advantages of a franchise: having access to a known company brand can save on marketing and sales resources.

Home-based. A home-based business is also known as a “kitchen table” or “garage” business. It can be small in scale and provide a modest income, a supplementary income, or serve as a launch pad for a high-growth business.

Start-up or high-growth. Investors (angel and venture capitalists) fund this type of business even before it has customers. Investors bet dollars that a start-up will provide a healthy return on their investments in a relatively short period of time.

Brick-and-mortar. A brick-and-mortar business sells products or services via a store front or building.

Diverse Group of Business Owners

There are a surprising number of options for those interested in running their own business.

Online. An online business conducts business via the internet. Many now include both online and offline (brick-and-mortar) components. For example, some brick-and-mortar stores also offer their products online.

Existing business for sale. It might make sense to buy an existing business. After starting and running a successful (or not so successful) business, some owners want to cash out and sell. The caution here: do the homework. Figure out why they want to sell. If they have a hard time attracting customers—so will you.

If you're thinking of becoming a business owner, there are many organizations you can turn to for help, often at no cost. Two good places to start are the Small Business Administration - Indiana District Office and the Indiana Small Business Development Center (ISBDC).

The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.