When you form your own business, a lot of your focus will be placed on your product or service, as well as the excitement that comes with being an entrepreneur. But there is one distinct aspect of your business that you need to decide on very early: what type of company are you?
This isn’t a question about your product or service. Instead, it is question about the way your business is legally structured. There are many different business types, and some have common names that you will recognize, such as partnerships and corporations. Today, let’s dive a little deeper into these business structures:
- A sole proprietorship is a simple type of business that sees you as the sole owner of the business. Little is necessary to establish this fact, so this is considered one of the simplest and easiest business types to undertake.
- A partnership is essentially the same thing as a sole proprietorship, except that two or more people own the business. Sole proprietorships and partnerships are best for simple businesses where personal liability is not a major problem.
- A different form of partnership is the limited partnership, which can be very complex. The “limited partners” in this setup may be responsible for the debts and liabilities of the company, and they also run the daily operations of the company. Limited partners also share profits.
- Limited liability companies and corporations are also complex, but they can protect owners from the business’s liabilities. Corporations are their own entity, and as such, they can shield an owner from the company’s liability. LLC’s do this too, but they do not count as their own tax entity, like a corporation does.
- Non-profits and co-ops are other options for business owners. These are associated with charitable, humanitarian efforts (for the former) and grassroots organizations (for the latter).
Source: FindLaw, “Types of Business Structures,” Accessed June 6, 2016