So, now you know what type of business you would like to run but how do you start? The first step is to determine what form of business organization you would like. Forms of businesses are based on types of ownership structure and taxes. Each have their advantages and disadvantages so it is important to research and consider all options. Once you have declared and opened a business, it can become tricky to change the form later on.
These are the basic forms of business ownership:
- Sole Proprietorship
A sole proprietorship is a business owned by only one person. It is easy to set-up and is the least costly among all forms of ownership. The owner faces unlimited liability; meaning, creditors of the business may go after the personal assets of the owner if the business cannot pay them. The sole proprietorship form is usually adopted by small business entities.
A partnership is a business owned by two or more persons who contribute resources into the entity. The partners divide the profits of the business among themselves. In general partnerships, all partners have unlimited liability. In limited partnerships, creditors cannot go after the personal assets of the limited partners.
A corporation is a business organization that has a separate legal personality from its owners. Ownership in a stock corporation is represented by shares of stock. The owners (stockholders) enjoy limited liability but have limited involvement in the company’s operations. The board of directors, an elected group from the stockholders, controls the activities of the corporation.
In addition to those basic forms of business ownership, these are some other types of organizations that are common today:
- Limited Liability Company
Limited liability companies (LLCs) in the USA, are hybrid forms of business that have characteristics of both a corporation and a partnership. An LLC is not incorporated; hence, it is not considered a corporation. Nonetheless, the owners enjoy limited liability like in a corporation and it has a little more tax freedom. An LLC may elect to be taxed as a sole proprietorship, a partnership, or a corporation.
All information gathered from: http://www.accountingverse.com/accounting-basics/types-of-businesses.html