Before you begin planning for your own business, you will want to make sure that you are aware of the business types. There are four main types of businesses to consider. Take a look at them all in detail and learn more about which one will best meet your needs.
A corporation is a business that is created separately from the business owner. The owner is just a shareholder in the company. This helps to cut down the risks involved with owning a business. It helps by limiting the liability of the business owner and protecting their personal assets from their creditors.
There can be some drawbacks when it comes to a corporation as well. Business owners and directors can be held liable for legal obligations if they have signed a personal guarantee to secure the loan upon the start up of the business. This is when their personal assets may be at risk.
Some of the advantages of this type of business structure include increased ability to transfer the business ownership, tax advantages, and easier access to financial options. Incorporated businesses will have to provide proper record maintenance and must also follow strict regulations. The costs can sometimes be higher as well.
A partnership is when the business owner looks for someone else to partner up with them to own the business. The partner may be their spouse, family member, friend or colleague. They may help in the start up and business operations and may also help by investing capital in the company. Sometimes, they may just choose to be silent and share in the company’s profits and losses. Usually, there will be a signed agreement between the partners that explains their particular roles.
Partnerships are usually much easier to start than a corporation. There are also a variety of tax advantages. One drawback is that there is not much protection for the owner’s personal assets. Liability is pretty much unlimited.
A sole proprietorship is basically the simplest business form. It has one owner, and the responsibilities of the business are up to that one owner. This business form has a lot of freedom. There are also not as many regulatory requirements. One thing to consider is the fact that the liability is also unlimited, which leaves no room for asset protection. Financial aspects could prove to be an obstacle, unless the owner has good credit history.
A cooperative is basically an association that has been formed by people that want to work together to run a business. This type of structure is sometimes a good idea for some industries because it helps to pool together resources and advice to meet a common goal. A co-op structure can have some great benefits, including limited liability and profit sharing. There are some disadvantages though, including conflicts between some of the members that can prove to be quite frustrating.