A man is known by the company he organizes. -Ambrose Bierce[Types of Businesses] – Owning your own business is an essential part of great economic success in a capitalist society. There are many types of companies to choose from. One of the first decisions you need to make is the type of business you want to open. There are several options you can explore for structuring your business. This article gives you the definition of three of the most popular types of business. These types of corporations are: (1) sole proprietorship, (2) corporation, and (3) limited liability company.
(1) one-man business – Individual ownership and operation of a business.
A sole proprietorship is not a separate organization and has no formal requirements for incorporation. The individual just starts doing business. Most sole proprietorships are small businesses and their initial business capital requirements are small. As a rule, the individual provides the means. In order to obtain financing, a sole proprietor takes a personal financial risk. The income of the company is the income of the sole proprietor and is reported in the income tax return of the individual. The owner is the managing director of the company. The company can only be transferred if the owner allows it.
(2) group – any legal person constituted by articles of association and having the rights of a legal person and limited liability for its shareholders.
A formal public filing is required to incorporate a corporation. A company can use short-term financing or debt and equity financing. Limited liability for shareholders is one of the advantages of corporate organization. Corporations have the tax consequences of double taxation. Many shareholders can own a company, but the board controls the business. Shareholders have the opportunity to express their views at the annual meeting by electing directors who represent their interests. A corporation can be dissolved voluntarily or involuntarily.
(3) Company with limited liability – newer form of business organization where liability is limited except for unlawful conduct.
An LLC is formed by filing the articles of incorporation with a central government agency. Members of an LLC make capital contributions in a manner similar to how associates make capital contributions. Members of an LLC have limited liability; at most they can lose their capital contributions. The LLC pays no taxes; Earnings and losses are passed on to the members, who are reported on their individual earnings. Members of an LLC enter into an operating agreement that establishes voting rights, resignation rights, and expenses. A member’s LLC interest is personal property and transferable. Most LLC statutes provide that upon the resignation, death or expulsion of a member, the LLC will dissolve.
Defining these business types is just the beginning to understand how each structure can be fully leveraged. Since there are different types of businesses, it’s important to understand the pros and cons of each. The type of business you organize determines a lot about how you reduce liability, protect your wealth, and pay your taxes. Defining the business type for you is important to creating your own lane business success.