The most common types of businesses include sole proprietorships, partnerships, limited liability companies, corporations and cooperatives. Here you will find more information about each type of legal structure. “States have different requirements for different business structures,” Friedman said. “Depending on where you settle, there may also be different requirements at the municipal level. When choosing your structure, you understand the state and industry you are in. It`s not a one-size-fits-all solution, and businesses may not know what applies to them. There are several types of businesses in Canada: a Canadian-controlled private corporation (CCPC); a body governed by public law; a body controlled by a body governed by public law; and another company (you guessed it: the kind of company that doesn`t fit into any of the other categories). From a legal point of view, shareholders or owners of companies cannot be held legally responsible for the actions of companies, their financial risk is limited to the value of the shares they own. Keep in mind that your initial choice of a form of business doesn`t have to be permanent.
You can start as a sole proprietorship or partnership, and later, as your business grows or personal liability risks increase, you can turn your business into an LLC or corporation. Where is your business going and what kind of legal form allows for the growth you envision? Contact your business plan to review your goals and see which structure best fits those goals. Your business should support the opportunity for growth and change, not hold it back from its potential. 2. Limited and Limited partnership means that most partners have limited liability (to the extent of their investment) as well as limited involvement in management decisions, which generally encourages investors to undertake short-term projects or invest in fixed assets. This form of ownership is not often used for the operation of retail or service businesses. The formation of a limited partnership is more complex and formal than that of a general partnership. In summary, the decision on the form of ownership that best suits your business should be carefully thought out.
Reach out to your key advisors to help you with this process. There are three main considerations that companies should take into account when deciding which legal form to choose. These are: The limited liability companyA form of organization that can be limited to a single person or several other owners or shareholders. is a relatively new form of commercial property that is now permitted in all fifty states, although the laws of each state may be different. LLC is a mix of sole proprietorship and corporation: The owners of the LLC have limited liability and are taxed only once for the company. “How to Choose the Right Business Structure for Your Small Business,” National Federation of Independent Business, accessed February 3, 2012, www.nfib.com/tabid/56/?cmsid=49906. The LLC offers all the benefits of a partnership, but limits the liability of each investor to the amount of his investment (see Table 12.4 “Limited liability companies: a summary of the characteristics”). “LLCs were created to provide entrepreneurs with the liability protection that businesses enjoy without double taxation.” Limited Liability Company,” Entrepreneur.com 9 July 2007, accessed 3 February 2012, www.entrepreneur.com/article/24484. You need professional legal advice to make this decision, but the first step is to learn what the different structures are, depending on your situation, long-term goals, and preferences. For many small businesses, the best first choice is either a sole proprietorship or, if more than one owner is involved, a partnership. Both structures make sense in a business where personal responsibility isn`t really a concern — for example, a small service business where you probably won`t be sued and you won`t borrow a lot of money. Sole proprietorships and partnerships are relatively easy and inexpensive to set up and maintain.
Every small business must choose a legal form of ownership. The most common forms are sole proprietorship, partnership and partnership. A limited liability company (LLC) is a relatively new corporate structure that is now approved by all fifty states. Before choosing a legal form, however, several factors must be taken into account, including legal and tax options. A company approved by the State in which it has its registered office is legally considered to be a single entity, separate and distinct from those who own it. A corporation may be taxed; it may be prosecuted; it may make contractual arrangements. The owners of a company are the shareholders. Shareholders elect a board of directors that oversees key policies and decisions.
The business has a life of its own and does not dissolve when the owner changes. One of the first decisions you need to make as an entrepreneur is how you want the business to be structured. All companies must adopt a legal configuration that defines the rights and obligations of participants in the ownership, control, personal liability, life and financial structure of the company. This decision will have long-term effects, so you should consult an accountant and lawyer to help you choose the right form of ownership for you. Legal form in which two or more partners share ownership of a company. There are two types of partnerships. In the partnershipA partnership consisting of two or more owners who contribute the initial capital of the partnership and participate in the profits and losses., All partners are fully responsible and each partner can enter into contracts on behalf of the other partners. A business format that may have multiple general partners and multiple limited partners who are not liable indefinitely. has at least one general partner and one or more limited partners whose liability is limited to the money or assets invested in the corporation. Limited partnerships are typically found in professional businesses such as dentists, lawyers, and doctors, as well as oil and gas, film, and real estate companies.
However, many medical and legal partnerships have shifted to other forms to limit personal liability. John M. Ivancevich and Thomas N. Duening, Business: Principles, Guidelines, and Practices (Mason, OH: Atomic Dog Publishing, 2007), 60; David L. Kurtz, Contemporary Business, 13th Edition Update (Hoboken, NJ: John Wiley & Sons, 2011), 163; William M. Pride, Robert J. Hughes and Jack R. Kapoor, Business (Boston: Houghton Mifflin, 2008), 150.
Scott Shane, author of The Illusions of Entrepreneurship (Yale University Press, 2010), argues that small businesses that are launched have a much higher success rate than sole proprietorships, outperforming unregistered small businesses in terms of profitability, job growth, revenue growth, and other metrics. Matthew Bandyk, “Turning Your Small Business into a Corporation,” U.S. News & World Report, March 14, 2008, accessed February 3, 2012 money.usnews.com/money/business-economy/small-business/articles/2008/03/14/turning-your-small-business -into-a-corporation. Shane says inclusion may not make sense for “small businesses” because low risk may not be worth complexity. However, Deborah Sweeney, Intuit`s founding expert, disagrees, saying that “even the smallest eBay business is likely to be sued,” as shipping products across the country or around the world can cause legal problems if a shipment is lost. Matthew Bandyk, “Turning Your Small Business into a Corporation,” U.S. News & World Report, March 14, 2008, accessed February 3, 2012 money.usnews.com/money/business-economy/small-business/articles/2008/03/14/turning-your-small-business -into-a-corporation.