Entrepreneurs like you are driving the economy. Business ownership can take many forms, more than people think. Understanding the various types of business structures is your first step if you want to own or start a new business.
It’s not difficult to choose a business, even though there are many different kinds. You’ll need to make a business strategy before you commit to a specific business if you are starting your own. We’ll help you decide which type of business you want to register.
What are the different types of business?
This is a breakdown of the different types of businesses according to their nature or purpose.
1. Sole Proprietorship
A sole proprietorship, which is owned and operated exclusively by one person, does not require registration. The government automatically considers you a sole owner if you run a business with just one person. Depending on the location and products you sell, you may have to apply for a local business permit with your state or city.
It’s important to remember that there is no legal or financial distinction made between a business and its owner. You, as the owner, are responsible for any profits, liabilities and legal issues your business may face. As long as you keep your business honest and pay your bills, this is usually not an issue.
Due to their ease of creation and simplicity, sole proprietorships are by far the most popular type of online business. A sole proprietorship may be the best option for you if you are starting your ecommerce company by yourself. Keep reading if you are starting a company with one or several partners.
2. General Partnership
A General Partnership is an enterprise owned by two people or more who share profits and responsibilities. Partnerships with other individuals have many advantages. You can pool your resources and knowledge, get private funding and much more. Keep in mind that the responsibilities and liabilities of a general partner are shared equally between each member.
You must register your partnership with your state, and choose an official name for your business. You’ll then need to get a business licence, as well as any other documents that the state office may be able to help you with. You’ll need to register with the IRS as well for tax purposes.
Partnerships are a great way to start an online business. It’s worth it to have someone share the burden of starting a business.
3. Limited Partnership
Limited partnership (LP) is a version of general partnership. In a limited partner, there are usually two partners: the General Partner and Limited Partner. The general partner usually has to make daily business decisions, and is personally liable for the company. Limited partners (typically investors) are not responsible for company debts, and they do not participate in the regular management of the business.
It’s not as common but it is a good option for businesses that want to raise capital by attracting investors who don’t care about the day-today operations of their business. If you decide to enter into a limited partnership, you will need to register the business with the state and establish a name for it. You’ll also have the IRS informed about your new venture.
Remember that this is the most popular option for people looking to invest, so consider it when you are exploring partnership options.
A corporation is an independent, fully-functioning business made up of shareholders who receive stock. A “C Corporation” is the most common. It allows you to deduct your taxes like an individual, but with the caveat that your profits are taxed at both the corporate and personal levels.
This is a very common business structure. If you work in a company that has multiple employees, this may be the one they use. The state will require you to submit specific documents, and then obtain the necessary business licenses.
It’s not advisable to declare yourself a corporation if you are just starting out as a small business, especially one that operates only online. If you have a well-established business and several employees, it might make sense to list your company as a corporate entity.
5. Limited Liability Company
A Limited Liability Company is a hybrid of a partnership with a corporation. It was created to help small business owners start their own businesses. This is one of the most common business types amongst new businesses. LLC owners are called members instead of shareholders. There must always be one managing member in an LLC, no matter how many members it has.
6. Nonprofit Organization
Nonprofit organizations are businesses that promote charitable or educational purposes. The non-profit aspect is important because any money that the company earns must be used to pay for the organization’s expenses, programs, and so on.
Remember that there are many types of non-profits, and some of them can be granted “tax exemption” status. The government will recognize your nonprofit status after you submit paperwork including an application. They will tell you what category best fits your business based on its parameters.
Last on our list, we have a cooperative. This is a business which is owned and operated by the members of an organization who use its services. The cooperative’s earnings are then distributed among its members, with no external stakeholders or other parties involved.
Cooperatives, unlike other businesses with shareholders, sell shares to “members” who have a voice in the direction and operations of the cooperative. In order to become a cooperative, your organization will need bylaws, a membership form, and a charter meeting.