The Three Main Types of Business Ownerships | ENTRE Institute Reviews

 

What is a business? A business can be defined as a legal business entity or profession, usually defined by a signed instrument. A business is also commonly defined as the systematic organized efforts and acts of people to make and sell products and services to earn a profit. The main aim of any business is to earn profits from the activities of its time.

Most businesses today are profit making businesses. Businesses can be sole proprietorships, partnerships, and corporations. A sole proprietor is the only natural entity that owns a physical asset, such as land or building. Other types of business structure are partnership, corporation, limited liability company (LLC), and nonprofit corporation. There are many forms of business structure out there and each has its own advantages and disadvantages.

Limited liability company (LLC) is one form of business structure that allows the partners to move the assets of the business only in case one of the partners is found to be liable in a court of law. Some businesses may operate in a sole proprietorship form with the presence of partners. This type of arrangement allows the business to have lower overheads than an individual sole proprietorship, but the business owner cannot be held personally liable for the actions of his partners. For small businesses that do not have partners, a limited liability company may work well.

Corporations are mostly structured as sole proprietorships. Unlike limited liability companies, corporations are taxed individually and have to pay corporate income taxes. However, unlike sole proprietorships, corporations are fully taxed. This makes the transfer of ownership between corporations through a shell company an advantage. Limited liability companies are not taxed, but the profits made by the corporation are transferred to the shareholders.

Various types of partnerships are also available. They include general partnerships, limited partnerships, partnership for investment, business combinations and limited liability partnerships. General partnerships simplify the flow of finances as it allows the partners to divide their time and resources equally. It can be set up quickly and without much documentation. Limited partnerships are designed to benefit the investors. Business combinations allow businesses to increase their profits by combining forces and sharing profits.

Most businesses can set up a limited liability company or incorporate using an already existing corporation. Forming a corporation requires the consent of the shareholders and the courts. A business must follow specific procedures like paying taxes and filing annual reports with the IRS. The IRS provides detailed instructions and forms for these types of corporations. Businesses can also use the c-corporation (business corporations), which are virtually identical to a partnership except they are not taxed like partnerships. Business c corporations also have different ways of reporting to the IRS.

Many small businesses choose to go the route of sole proprietorships. These are registered corporations but have one owner. Some sole proprietorships can be flexible, allowing stockholders to control or alter management. However, they are still limited in what they can and cannot do. Sole proprietorships offer many benefits, including limited liability, the ability to conduct business in multiple countries and the ability to save costs through a streamlined tax process.

Many businesses use a hybrid business model. They combine the advantages of limited liability, the ability to grow on their own and control their own finances. Hybrid businesses use a combination of the above three business models. For example, some businesses use the profit and loss statement method of determining their profit and losses. Others combine the profit and loss statements with internal accounting methods.

Many partnerships use what is called a pass-through entity. A partnership will only pay taxes when its income is subjected to tax. A corporation, sole proprietorship, and limited liability company all present no tax implications. However, this benefit creates an added incentive for owners to remain with their partnership. The same can be said for sole proprietorship and incorporation.

Many different types of partnerships exist. The most common is a partnership that has been set up as a limited liability company. Another common form of business owned structure is a partnership that uses the form of pass-through taxation. Finally, sole proprietorships and incorporation sometimes use what is called an 'innogy' partnership. This type of partnership consists of the business being run by a board of directors, with all share holders being paid a percentage of profits rather than being paid a dividend.

There are several other main types of business structures, but these are the three main types that most people are familiar with. If you are a business owner, it is important to understand all the implications of owning a business before taking the leap. Understanding the difference between sole proprietorships, partnerships, and corporations can help business owners make the right decisions that will hopefully result in the success that they desire. Take the time to research the different structures that are available and then to consult with a qualified business attorney to determine which option is right for your business.