What are the different types of small businesses? A small business is defined as a business that is privately operated and owned. Also, a main characteristic of a small business would be having a small number of employees. There are four main types of small business: sole proprietorship, partnership, close corporation, and limited liability partnership or LLP.
Sole proprietorship is among the types of small business that is most common. As the name implies, businesses run by a sole proprietor are business run by only one person. When business decisions, plans, and the like are left to one single person, then the business type is sole proprietor. The liabilities of the business are also up to that same person, too. Therefore, any debt of the business is that person’s debt as well. Among all types of small business, sole proprietorship is the one that gives the owner full freedom and flexibility. It has the most basic accounting practices as well. At the end of the day, sole proprietorship is the easiest to run and build as aside from the least people involved, it entails the least regulations.
The second of the types of small business would be partnership. Much like any other partnerships, business partnerships also entails two people. Sometimes, business partnerships can involve more than two people but everything about the business is divided into the different partners. Compared to corporations, partnerships are the one preferred by more people as its taxes are levied. However, partners share heavier liabilities than shareholders do.
The third of the types of small business would be close corporation. This type combines some aspects of sole proprietorship and the partnership. Close corporations are privately held corporations, so to speak. They are publicly traded like corporations, too. Usually, these are medium sized enterprises. In laymen’s terms, close corporations are like every other company but they are less expensive to operate and a lot easier to run.
Last of these four types of small business would be the limited liability partnership or LLP. This is much like the regular business partnership. The main difference is that here in limited liability partnerships, the people involved are not liable for each other’s actions. As the name of this type implies, each partner has a limited liability in the business. This, therefore, can be deemed a mixture of partnership and corporations. Compared to corporations, when it comes to managing the business, limited liability partners get the right to directly manage. The thing is that in each country these business types have different characteristics. There are some countries that require an unlimited partner in each entity and there are some that don’t.
No matter what types of small business you would want to enter, the main goal is to be able to distinctively define the responsibilities and liabilities of each person involved in the small business. Always keep in mind that you should make sure that you know very well each aspect of the business and that you will be prepared to face all the future endeavors of the business you will be establishing.