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When you are brainstorming business ideas and evaluating different types of business, it is imperative to select a proper ownership structure that can help to acquire business goals in the future.
Types Of Business
You will be amazed to see, there are different types of businesses based divided based on their ownership. Being a businessman in the future, you must consider the advantages and disadvantages of each business type before taking a decision about starting a business. The article discusses the most prominent types of business.
Sole Proprietorship
This type of business does not require any paperwork for creating a legal entity. Sole Proprietorship is one of the simplest and less expensive business ownership types. The advantage of a sole proprietorship is its simplicity as it does not require any complications like registration, licensing, and other paperwork. You can have control over the business process and decision-making process. You do not need to pay heavy taxes as profits pass through the personal income of owners. The disadvantages of sole Proprietorship are legal liability (lawsuits can easily be launched against the owner), financial risks (the businessman has to bear all the losses alone), and access to funding (it is hard to get investment and loans because of informal business structure).
Partnerships
In this type of business, the owners are two or more who have a business idea and are teamed up for starting a business. Generally, a formal partnership agreement is created among them in which rights, obligations, and shares of each partner are decided. The advantages are having a simple partnership business structure, the taxation is passed through proportional shares of each partner, and having sufficient control over business decisions and control. You must bear some disadvantages for your upcoming business that would be a legal liability and financial risks.
Limited Liability Partnership (LLP)
An LLP requires a formal operating agreement between involved partners. You also need to get your upcoming business registered. It is a popular business idea if you are a doctor, architect, engineer, lawyer, and accountant. Limited liability, ownership and control, and tax options are prominent advantages of LLP businesses. It can protect you and your partners from any personal liability for any financial or legal claim. But there are some limitations of LLPs such as increased complexity and limited availability that you need to bear.
Limited Liability Company (LLC)
An LLC type of business referred as a legal entity formed by establishing an LLC operating agreement as well as filing organizational articles with the secretary of state. Here, you need to evaluate all the benefits and drawbacks more consciously. In LLC, a separate legal entity can be created so there could be minimal risk of liability for you. Besides tax options, another benefit for LLC is active ownership as more than one member exercise as much control in the business operations as they prefer. This would give flexibility to your upcoming business. On the darker side, LLCs involve complexity as this type of business requires proper paperwork, regulation and legal work. You would also bear the administrative costs.
Corporations
Another important type of business is a corporation that is operated for the benefit of organizational members that use the services. The advantages of a corporation type of business are self-employment taxes, limited liability and access to capital. The disadvantages are regulatory oversight, corporate tax, less control, and complexity and cost.
Conclusion
While analyzing a business idea, it is important to review different types of businesses along with their advantages and disadvantages. The article can help you to decide what business is suitable for you.
