Whenever an individual decide to launch a business, knowing about various types of business structures becomes an important factor to consider. BY educate one’s self leads to an informed decision. It is important to be aware of the advantages and weaknesses of all business structures. When setting up a company, one must choose the type of company that suits the fiscal condition and expansion vision of the instigator. Below are basic information on major business structures in the US, along with some advantages and disadvantages.
Sole proprietorship is probably either of the simplest, most uncomplicated types of business structure there is. This type of business structure has a single individual who owns and monitor the company. The business owner will ensure smooth business operations of the entire company. However, he or she is responsible for any profit or loss the business makes. Sole proprietorship don’t require a great deal of money to train and the dissolution procedure is very quick and easy. However, when the business owner dies, the business organization will cease to exist. This type of business structure is best for business owners who’re experts in certain fields and wish to profit off their talents.
Essentially, partnership firms may be formed between two or more people. The members are called as partners and are joint owners of the entire company. When setting up a company under partnership, know that the partners are responsible for any profits, loss and liability of the company organization. One notable feature of partnership is the pre-defined agreement regarding profit sharing and loss bearing.
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Partnership is very similar to sole proprietorship in the area of ease and simplicity of creating a company but the entire taxation policy and obligations are somewhat complex. However, there is no specific tax for the partnership company.
3 types of business ownership
Dissolution of a partnership firm will occur when a partner files for bankruptcy, dies or through a mutual decision between partners. Setting up a company under partnership requires knowledge of the financial obligations and agreement between partners.
Limited Liability Company is either of the newer types of business structure there is. A limited liability corporation is a combination of a corporation and partnership. It provides flexibility by blending benefits of both corporation and partnership business structures. Just like a partnership firm, forming an LLC is relatively simple. The tax obligations of Limited Liability Company are likewise similar to a partnership firm. However, during the formation phase, members should take care not to add more than two functions of a business corporation in the agreement otherwise; the LLC will be treated, rather, a business corporation for taxing purposes. The best advantage of Limited Liability Company is that provides flexibility that it can formed to run different business ventures.
A corporation is the most complicated type of business structure that requires extensive documentation, legal formalities and money to form. Note that when a business corporation is incorporated and recorded with the government, a new separate entity is then, created. This entity is different from the business owners. The shareholders will determine the board of directors through an election. The elected board of directors will form all the necessary policies, rules and guidelines for the effective functioning of the company. The directors appoint managers and officers and they control the daily business operation of the company.
The basics among these corporations are basically the same. They only differ as to the number of shareholders and profit sharing policies. Corporations come with certain advantages. The most crucial is that corporations are regarded as separate from the owners and their personal liabilities. However, when setting up a company, it is important to point out that corporations will take much time, money and legal formalities.
There are a few advantages of a business corporation. The most crucial one being the very fact that a business corporation is described as different from the owner and his personal liabilities. However, it takes a long time, money and legal formalities to set up a business corporation.
Choosing the right business structure for your business will help you gain all the advantages each can bring. However, just like anything in life, there are certain drawbacks to consider as well. It is important to educate yourself with all the information you can search for before you make any decision. Consider all the pros and cons. It is also advisable to check with your accountant and your attorney, and deliberate which type of business structure is the more advantageous.