Describe the main types of business ownership - sole proprietor, partnership and company - and give an advantage and disadvantage of each

What this dot point is asking

You need to describe the main ways a business can be owned in Singapore - a sole proprietor, a partnership, and a company - and give one advantage and one disadvantage of each. Keep the descriptions short and clear, and be ready to suggest which type would suit a particular small business and why. The key idea that runs through all three is who owns the business, who makes the decisions, and who is responsible if the business owes money.

The answer

Sole proprietor

A sole proprietor (also called a sole trader) is a business owned by one person. Many hawker stalls, small shops, and one-person services such as a tutor or a plumber are sole proprietors.

• Advantage: the owner keeps all the profit and makes all the decisions, so they are their own boss.
• Disadvantage: the owner has unlimited liability - if the business owes money, the owner may have to pay from their own savings. They also carry all the work and risk alone.

Partnership

A partnership is a business owned by two or more people, called partners, who share the work, the money needed, and the profit. A small law firm, a clinic with two doctors, or two friends running a cafe might be a partnership.

• Advantage: partners share the work, the start-up money, and the decisions, and can bring different skills.
• Disadvantage: partners usually have unlimited liability too, profit must be shared, and partners may disagree on how to run the business.

Company

A company is a business that is a separate legal body from its owners. The owners are called shareholders, and they have limited liability, which means they can only lose the money they put in - their personal savings are protected. Big businesses such as a supermarket chain are companies, but small businesses can be companies too.

• Advantage: shareholders have limited liability, so their personal money is safer, and a company can usually raise more money to grow.
• Disadvantage: a company is more expensive and complicated to set up and run, with more rules and paperwork to follow.

Choosing the right type

The right type depends on the size and risk of the business. One person starting small and simple often picks sole proprietor. Two or more people who want to share the load pick a partnership. A business that wants to protect its owners' savings and grow larger forms a company.

Examples in context

Example 1. A hawker stall (sole proprietor). A single hawker owns the stall, keeps all the profit, and decides the menu and prices. But if the stall runs up debts to suppliers, the hawker must pay from personal savings because of unlimited liability. This is the simplest, most common form of small business in Singapore.

Example 2. A neighbourhood clinic run by two doctors (partnership). The two doctors share the rent, the cost of equipment, and the patients, and each brings their own skills. They split the profit. The downside is that they share unlimited liability and must agree on big decisions, so good trust between partners matters.

Try this

• Cue. State the type of ownership for each: a single tutor working alone, three friends who share a renovation business, and a large supermarket chain. Match each to sole proprietor, partnership, or company by counting the owners and thinking about size.

• Cue. Explain in one sentence what unlimited liability means, and say which types of ownership have it. Remember it is about whether the owner's personal savings can be used to pay business debts.

• Cue. Suggest, with one reason, the best type of ownership for two cousins who want to open a small bakery together but worry about losing their personal savings. Weigh sharing the work (partnership) against protecting savings through limited liability (company), then commit to one with a reason.