If you are already in business, you should be aware of the several types of business forms. However, any business can take either one of these four major forms:
* Sole Proprietorships
* Limited liabilities
1. Sole proprietorships
Sole proprietorships are the oldest types of business forms. It is a business run by a single individual. In this form of business, the owner is in charge of every aspect of the business, including the production section, account section, sales and marketing section. In most cases, the business owner is helped by his/her family members. One good advantage of these types of business forms is the low start-up capital necessary to operate the business. Funds for the business can be raised by the owner through savings or through friends and relatives. The owner also has full control of the business and easily takes decisions as they arise. One disadvantage of a sole proprietorship is the problem of continuity. Unlike other types of business forms, a sole proprietorship might easily wind up if the owner dies. Another negative side of a sole proprietorship is its unlimited liability. This means that the business and its owner are one and are treated as such in case of legal disputes. If a legal problem arise that requires the business to meet financial obligations, the owner is required to provide the money regardless of the capitalization of the business. The business and its owner are treated as one entity unlike other types of business forms where the business is regarded as a separate entity from the owners.
In a partnership, two or more people come together to operate a business. It differs from some other types of business forms because it does not separate itself from the owners. The partners are legally bond and liable to compensate for any shortfall that arise in the course of operating the business. A partnership has more chance of continuity than the sole proprietorship even after the demise of a partner. But the death of a partner (especially a major partner) can lead to the closure of the business. A partnership is also better than a sole proprietorship in terms of sourcing for loans. The nature of These types of business forms entails that profits have to be shared which also means that the decision process is not vested on the hands of a single individual.
3. Limited Liabilities
These types of business forms have more members and their liability is limited to only their investment in the business. A limited liability business can either be private limited liability or public limited liability. Some of the companies under this category can also be known as corporations depending on their type of limited liability.
Corporations are the biggest and more complex of all types of business forms. They have certain legal rights and are treated differently as a legal entity that can sue and be sued. They have more comprehensive tax structures and can exist for several years with little risk of extinction. When they wind up, it is unlikely because of the death of a member but most probably because of financial turmoil.