Forms of Businesses

There are three main forms of businesses: sole propriertorships, partnerships, and corporations. Each has its’ advantages and disadvantages and when starting a business you will need to decide which form will work best for you.

Sole propriertorships are businesses owned by one person. It’s the most common with 75% of all U.S. businesses being sole propriertorships. This is because it’s the easiest and cheapest to form. Since you are the owner, you get all the profits but you are also responsible for any debts that may occur. And if you die,the business dissolves and doesn’t go to a spouse,child or any other survivor.

Partnerships are businesses owned by two or more people. There are general partnerships and limited partnerships. In the US about 6% of all businesses are partnerships. They too are pretty easy and inexpensive to set up depending on how big you want the business to be. It is suggested with partnerships that you have a partnership agreement defining each partners’ rights and responsibilities with the business. The main disadvantage with partnerships is unlimited liability.

Corporations are legal entities that are entirely separate from the parties who own them. Corporations make up 19% of all business types and most well-known businesses are corporations. Shareholders are the owners of corporations and the portion of the corporation they own depends on the percentage of stock they hold. The board of directors are responsbile for governing the corporation, overseeing policies and decisions, setting goals, hiring and evaluating the CEO, and approving the distribution of income to shareholders. The advantages of a corporation are limited liability, being able to raise funds by selling stock, specialized management, continuity and transferability. The disadvantages are there could be different opinions on goals between the managers and shareholders of the corporation, it’s expensive to set up, they are subject to levels of regulations, and double taxation.

Other types of businesses include: s-corporations, limited-liability companies, cooperatives and not-for-profit corporations(nonprofit).

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One Response to Forms of Businesses

  1. Ted Major says:

    Don’t forget the LLC! Partnerships and sole proprietorships share many of the same characteristics: they’re easy to form and flexible to manage, but they have the big risk of unlimited liability. Corporations reduce risk by providing owners with limited liability, but do so at the cost of being more expensive to form and subject to greater regulation and managerial inflexibility. LLCs combine the flexibility of a partnership with the limited liability of a corporation and are a tremendously popular form of ownership for new businesses of all sizes, from a local restaurant to amazon.com.

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