Starting a business can be difficult. The owner has to decide between products, services, logos, marketing strategies, employees, a website, and more. The most important part of starting a business is deciding which type of business to start. This helps set up structure, purpose, and goals in a business.
Continue reading to learn about the four different types of businesses.
Sole Proprietorship
The most known business type is the sole proprietorship. This type is an unincorporated company with only one owner or married couple. This is an ideal business model for those who enjoy working alone and want to be responsible for decision-making.
Consequently, it does mean that while all the profits go to one person, so do all the liabilities. The sole owner’s personal income tax record includes the income and tax expenses of the business.
Partnership Business
Counter to a sole proprietorship is a partnership business. American Express defines this business type as “two or more people who combine their resources to form a business.” They add that co-business owners “agree to share risks, profits and losses.” This model further divides roles and responsibilities into two separate partnership structures.
First, general partners own and operate the business and assume liabilities. This model is traditional and encourages owners to engage with day-by-day decisions. Second, limited partnerships include general and “silent” partnerships. This model includes investor-like partners because they have no control over the company and have limited liabilities. This can be a helpful business type for remote jobs and location convenience. Another business type to consider is limited liability companies.
Limited Liabilities Companies (LLCs)
Limited Liability Companies (LLCs) allow owners, partners, and shareholders to limit personal liability while protecting personal assets. Although LLCs are not corporations, they have the same limited liability as corporations. LLCs follow the same tax system as sole proprietorships, partnerships, or corporations. This is one of the most flexible business types.
4 Types of Corporations
Finally, one can consider the four types of corporations to follow: S corps, Nonprofits, B corps, and C corps. S corps have the liability protection of corporations and several tax benefits but can only issue common stock. Additionally, this category can have up to 75 shareholders who must be allowed to vote on major decisions.
C corporations have the strongest personal liability protection but pay income tax on their profits. They’re completely independent of shareholders but require more extensive reporting, record-keeping, and operational processes. Double taxation occurs in certain situations for C corporations.B corporation is a for-profit corporation with a mission and profit motive.
B corporations are taxed like C corporations but focus more on purpose, accountability, and transparency. Business Insider, a business and media website, describes this type as a corporation that “works toward a more inclusive and sustainable economy.” These companies set out to give back to communities, promote a healthier environment, and reduce inequality. This is one of the most ethical business models to follow, which can positively impact smaller communities and even the world.
Conclusion
Business owners have several business types to follow, which can determine what kind of company they represent in the future. In addition, business models, shareholders, and liabilities will become the business’s foundations and can affect decisions. Sole or partnerships may be all one needs, or multiple owners and partners can fulfill the ambitions of the business. Ultimately, it is an important step to take to achieve the goals of a business.
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