Kinds of Businesses
- A sole proprietorship is the simplest form of business. This is a business operated, often domestically, by an individual. The Poznak Law Firm indicates that for legal and tax purposes, a sole proprietorship is not treated separately from the individual. One exception to an individual business being referred to as a sole proprietorship, as noted by the IRS, is when the owner establishes his business as a limited liability company (LLC).
- A business partnership is an arrangement with multiple owners in which the partners have not filed for state incorporation as they would in a more formal LLC or corporation. A limited partnership and the more common general partnership are the two types of partnerships. In a limited partnership, each general partner assumes unlimited liability but limited partners are only liable for their investments. In a general partnership, each partner assumes fairly even participation in business operations as well as equal liability. When entering into a business partnership, you need to trust in your co-partner(s), as you are ultimately responsible for decisions they make and implement.
- LLC business setups have become increasingly popular in the early 21st century, indicates Gaebler.com, an entrepreneur resource website. Gaebler's LLC overview states that "the advantages of forming an LLC are that the members are afforded limited liability and have pass-through taxes similar to a partnership." Tax benefits and reduced liability are significant advantages to being in an LLC, compared to the less formal sole proprietorship and partnership arrangements. An LLC is similar to a corporation in its operation, but you avoid double taxation and lots of paperwork requirements.
- A corporation is the most formal business operation. Generally, a corporation is seen as a separate business entity from its owners, as ownership is transferred through the sale of shares. Thus, owners usually have limited liability for corporate operations. Publicly owned corporations do have more stringent rules to follow than other less formal business entities, especially when the business's stock is traded on a major listing index like the NASDAQ. Corporate owners are called stockholders and share in the profits and losses of the business.