Different Types of Business: Ultimate Guide to Industry Know-How
Starting a business can be both extremely exciting and nerve-wracking. There are so many decisions to make, from what type of company you want to start to how you will get customers. This blog post will provide a description of a few different types of businesses that exist today.
- Sole Proprietorship
The most common type of business, a sole proprietorship, is one individual owned and operated. There are no special filings or paperwork required to set this type of company up- you start doing business under your name. The most significant advantage of a sole proprietorship is that it’s easy and inexpensive to set up. However, the owner is also personally liable for any debts or lawsuits against the company.
A corporation is a separate legal entity from its owners, and as such, the owners are not liable for any debts or lawsuits the company may incur. There are several different types of corporations, including C-corporations and S-corporations. To form a corporation, you must file articles of incorporation with your state’s secretary of state. Corporations are more expensive to set up than sole proprietorships but offer their owners more liability protection.
- Limited Liability Company (LLC)
An LLC combines some of the benefits of a corporation with those of sole proprietorship. Like an S-corporation, it offers liability protection for its owners. In addition, it has pass-through taxation, meaning that business income is taxed only once rather than twice under the corporate structure. However, your tax return reports profits like a sole proprietorship or partnership. To set up an LLC, you must file articles of organization in your state.
Similar to corporations and limited partnerships, professional associations offer liability protection for their members while also limiting each member’s financial responsibility if something goes wrong. While setting one up isn’t too complicated (you register as a legal entity with your Secretary Of State), most professional associations require that you be a licensed professional to join.
A partnership is a business owned by two or more individuals. Like a sole proprietorship, there are no special filings or paperwork required to set one up-you start doing business with your partners. However, the thing to note is that each partner is liable for the debts and lawsuits of the company.
Like limited partnerships, limited liability companies offer liability protection for their members while still allowing them to have personal financial responsibility if something goes wrong.
- Nonprofit Corporation
A nonprofit corporation is a separate legal entity, meaning that the owners are not held liable for its debts or lawsuits. Nonprofits can be formed as either corporations or associations, but most nonprofits are 501(c)(12) corporations due to their tax-exempt status. To form one, you must
file articles of incorporation with your state’s secretary of state office and open up an Employer Identification Number (EIN). Depending on what they do, there may also be additional paperwork required by federal agencies like the Internal Revenue Service.
A cooperative, or co-op for short, is a business owned and operated by its members. Like nonprofits, no owners can be held liable if something goes wrong. The cooperative may also have worker-owners (similar to an S corporation) or consumer-owners.
To set one up, you must file for important documents that are necessary for the existence of the company. If you plan to sell products, then you will also need approval from the Federal Department Of Agriculture unless your co-op qualifies as a “small seller.”
The essential step towards running a successful business is choosing the right industry from day one. Knowing which types of businesses work best in different industries will help ensure that yours becomes not just profitable but sustainable.