There are several types of business entities that differ from one another considerably. One should know about each of them to be able to start a productive business. Hence, we will provide you with the brief description of each of business entity types in this article.
This is the type of business that is run by one individual only. This may be considered one of the simplest forms of business organizations. If the owner of a proprietorship passes away, the organization cannot have any existence after that. It should also be noted that all the liabilities associated with the proprietorship are at the same time the liabilities of the owner.
One of the advantages of a sole proprietorship is that the owner is the boss and he/she can decide everything, keep the profits etc. Besides, it is quite easy for a US citizen to establish a business of this type, as it involves minimal legal restrictions.
Unlike the previous type of business entity, a corporation is separate from its owners. Corporations operate under the state law, so articles of incorporation should be filed with the state to establish this type of business entity. Stockholders are free from liability.
There exist small business corporations (S-Corporations) as well. An S-Corporation has got limits on the number of members, but at the same time it has got certain elements of tax advantage. This means that small business corporations are free from the taxation that general corporations have.
We should mention about the so called professional corporations (PCs) as well. A PC is a specific kind of business entity for professionals. Usually, people who practice law, architecture or accounting form such kinds of entities.
One advantage of a corporation is that a business may be passed on to other people, to heirs. Another advantage is that any stockholder is free to sell his/her share whenever he/she wants to. However, if we try to compare the costs for starting a corporation with the costs of starting a sole proprietorship, we can see that the first ones are much higher.
There are two types of partnerships; general partnerships and limited partnerships. In a general partnership, all the partners share the liabilities, the debts, as well as the profits gained from the business.
In the case of limited partnership, the personal liability of individual partners is limited. Limited partners do not participate in everyday operations of the partnership, while general partners do.
One of the advantages of a partnership is that there are greater resources that may make it easy to make decisions, be quite creative and productive.
Limited Liability Company (LLC)
We can say that an LLC is something between a partnership and a corporation. An LLC has the liability protection of a corporation. There may be either single-member LLCs or those with multiple members. LLCs offer various ways for customizing the structure of your business. People dealing with LLCs should consult a lawyer to help them determine what type of structure best meets their interests.
These are the main types of business entities, if you have got some useful information to share with us, you can comment below.