Types of Business Organization
Starting a business is the wisest thing to do for starters and experienced businessmen alike. Businesses are highly competitive. So, it’s advisable to do your homework and find out all that you can about how to start a business. All businesses have their own pros and cons and business startup comes with its own set of difficulties. But the upside is that you’re now in business and can begin making good money if you have the know-how and hardworking attitude to succeed.
Sole Proprietorship. The easiest type of business to start. There are some common types of sole proprietorship which include partnership, sole proprietorship, corporation, LLC, and the various types of limited liability companies. Partnerships and sole proprietor businesses are closely related, but there are differences between them as well.
Limited Liability Company: Limited liability companies are similar to sole proprietorship businesses, but there are several differences between the two. LLCs are run by a board of directors, whereas sole proprietorships are run by an individual. For corporations, owners must sign a form saying that they are personally liable for all debts of the business.
LLCs are taxed as corporations. In addition, they have corporate benefits, such as exemption from income taxes and payroll taxes. They also pay corporate taxes at the end of the year. However, unlike in the case of sole proprietorships, shareholders in an LLCs do not usually pay capital gains tax. Plus, they cannot be required to provide security for the business, like shareholders in corporations.
Corporation. Corporations are legal entities under the laws of the country. Ownership is by the name of the person alone, or in the case of a corporation, by the shareholders. In some countries, corporations are treated as legal entities, meaning they are owned by their investors directly, and therefore are taxed as individuals.
S corporation. A corporation is treated as a separate legal entity from its shareholders, but it still has to report its profits to the government. This kind of entity is subject to taxation.
Partnerships. Partnerships are types of corporations that are not strictly speaking a corporation. Partnerships are formed between unrelated businesses or individuals. Examples of partnership businesses are joint venture partnerships, which see each partner takes on the tasks of two or more employees of the parent company. Limited liability partnerships (LLPs) are another example, where one partner has a very small percentage of the ownership, while the other partner has a much larger percentage.
Many businesses throughout the world have evolved into sole proprietorships, partnerships and corporations. This means that when people start businesses, they can do so alone, or they can form LLCs (for limited liability) or corporations (for greater control). However, they can also elect to incorporate themselves, which allows them to have a greater say in how their business will be run and be able to reap benefits from their investments in that business. All businesses should be thoroughly thought out and researched before forming themselves.
Limited partnerships. Limited partnerships are partnerships that are registered as a C corporation, for purposes of paying taxes. In many countries, this type of business entity is required to pay taxes on its own profits instead of passing those savings on to investors or other third parties. There are many partnerships in the business world today, however, limited partnerships are most often used as a new business name.
Sole proprietorships. When a person or group of people form a partnership, they own the business at its root. Therefore, when that business is sold off, the partnership would actually be separated into two separate companies. This means that all of the partners are still individually taxed for their portions of the business, even if it’s sold off and divided into smaller pieces. This is a huge advantage to those that cannot afford to have all of their business assets taxed.
Corporations. A corporation is a legal entity separate from its owners. The profits that the corporation earns go to the investors or owners. It cannot be controlled by one person or one group. For example, in a sole proprietorship, the owner makes all of the decisions.
Partnerships. When you purchase shares in a partnership, they will become an ownership interest in the partnership. Therefore, unlike a sole proprietorship, there is not one set of profits that can be distributed to the shareholders. Instead, the profits are split between all of the partners. In a C corporation, the corporation itself profits but all of the investors and owners of stock are taxed for their portion of the profits.