Starting a business can be an exciting and profitable venture, but it can also be a complex and intimidating one. Even seasoned business owners might have trouble identifying the myriad of legal, tax, and financial requirements that must be met before officially launching their company into the world. If you are ready to take the plunge and start your own company but don’t quite know where to begin, this guide is for you. Read on, to discover more about the business entity types before getting started with your own company.
Sole Proprietorship
A sole proprietorship is a legal entity that owns and operates as a single business entity. Both individuals and small businesses can register as sole proprietorships, and they are sometimes also referred to as sole proprietorships. The owner of a sole proprietorship is referred to as the proprietor, and the company as the proprietor’s company. The proprietor is the legal owner of the business. Partner-shareholders can be listed on the partnership agreement as partners, with the proprietor listed as the representative of the partnership. The owner’s personal liabilities can include tax obligations, payroll and other business obligations. However, as a legal entity, the owner is immune from these obligations.
Partnership
A partnership is a business structure that creates a legal obligation for both partners to support and assist their partnership. Partners can be individuals, corporations, or governmental units. In general, the agreement between partners states that the profit of the partnership will benefit both partners. A partner can be either the general partner or the limited partner. The limited partner is only legally responsible for the investment money and profits, but has no power to direct the management or operations of the business. A private partnership, however, is registered as a partnership for tax purposes and is treated as a separate legal entity.
Corporation
A corporation is a general legal entity that owns and operates as a separate business entity. The owners of a corporation are the corporation’s shareholders, and the company is managed by the shareholders’ representatives, known as the management company. Like a partnership or sole proprietorship, a corporation can be either a public company or a private company. The public corporation is a participant in the stock exchange, while the private company is not listed on any stock exchange, but is instead a wholly owned subsidiary of another company.
S-Corporation
A special purpose corporation is a type of business entity that is used to perform specific types of business activities, such as real estate investment, manufacturing, or food products. S-Corporations are taxed as foreign entities, so they must be registered with the IRS and must meet certain requirements before they can operate in the U.S.
Limited Liability Companies (LLC)
A limited liability company (LLC) is a business entity that provides shareholders with limited liability. The business of an LLC is the operation of the limited liability company. The assets of the limited liability company can include anything that the company owns or controls, including people, assets, and liabilities. LLCs are not recognized as a separate legal entity in legal systems outside the U.S., so they are not subject to the same complexity and regulatory requirements as a traditional corporation. However, like all companies, LLCs must be organized and operate as a legal entity in order to qualify as a legal entity.
