Are you looking to form a business of your own or you want to buy an existing one? Knowledge of the type of business is important. This helps to categorise the business and also determine the structure of the business.
There are four main types of businesses; Sole proprietorship, Partnerships, Limited Liability Companies, and Corporations.
A sole proprietorship business is a company owned by one individual only. It is the simplest type of business and offers the least amount of legal and financial commitment for the owner. Often in a sole proprietorship business, the owner shares same identity as the business. This makes the owner fully responsible for all liabilities in the business.
This type of business is easy and inexpensive to manage and gives the owner full control of the company. It is also tax-deductible.
A partnership type of business is owned by two or more people. Partners in this type of business can also enjoy tax incentives. Owners are responsible for all liabilities of the business and there are three forms of partnerships; limited partnership, general partnership, and limited liability partnership.
A partnership type of business offers more flexibility but also highly prone to risk.
Limited Liability Company
Limited Liability Companies combine partnership and corporation forms of business. They enjoy the tax incentives of sole proprietorship and the limited liability features of a corporation. They are able to determine their tax responsibility.
It is the most flexible type of businesses.
An incorporated business is a separate entity from its owners. It protects the owners from being liable to the company. It is however difficult to create.
There are 3 main types of corporations: C Corporation, S Corporation, and Non-Profit Corporation.
Examples of types of businesses include: