Different Types of Businesses: Everything You Need to Know
To know about different types of businesses, you must first know about sole proprietorships because it is the easiest business entity to create.3 min read
3. Limited Liability
Different types of businesses
An SP is not a legal entity but the person who owns and operates under the name. Outside of the owner, the SP does not exist, and there is division between liabilities and assets when operating a business, causing owners to become responsible for any debts or liabilities.
For instance, web-based business operators, plumbers or electricians usually file under SPs.
A partnership is an existing agreement between two or more parties for the purpose of establishing trade or other business.
Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. – IRS
Each person brings a skillset or other asset in the form of labor or financial investment. Partnerships are usually held by doctors, dentists or lawyers. Additionally any profits or losses are absorbed among the partnerships.
A limited liability is a type of system that does not allow an invested party to exceed the amount of liability he or she invested in. This type of arrangement protects shareholders, including partners operating in a limited capacity.
Limited liabilities are popular among doctors or lawyers, and they are not responsible for the actions of other members. Moreover, all members have a say in governing affairs. This is in stark contrast to limited partnerships, where partners do not have a say in how the company operates.
Some states additionally need you to file an operating agreement, which is comparable to a partnership agreement. Similar to partnerships, LLCs don’t have perpetual life.
In addition, some states also require an operating agreement, a partnership agreement that determine how the LLC is structure.
LLCs have a limited lifespan, and certain states mandate that an LLC must be abated in a few decades.
However, a company usually expires when a member of the LLC dies or quits the organization.
If you strategize to operate in multiple states, you need to figure out how a state will handle an LLC formed in another state.
To maintain the integrity of your LLC, hire a good accountant to help you along the way.
A cooperative is a business organization owned by a group of individuals and is operated for their mutual benefit.
A cooperative is an entity operated by a cabal of members for the mutual benefit of everyone. A cooperative can be incorporated or unincorporated. A cooperative can include water or electricity companies or credit unions.
Like partnerships, a company or corporation is owned by a group of members for the purpose of commercial enterprise.
Companies are usually owned by shareholders, investors who manage affairs of the company.
Companies are possessed by shareholders who each place a set amount of money into a central pool.
The pool of capital is then made larger to by borrowing and additional forms of finance. A group of appointed directors run the business for the shareholders, and profits are divided among everyone according to company agreements.
Typically, shareholders receive a portion of the company that amounts to how much they invested in the company.
Directors manage the company for the shareholders, who are given a portion of the profits.
Each shareholder receives a portion – or share – of the company that is equivalent to what they put in.
A company is a legal entity that’s completely separate from the shareholders.
The company itself is different from shareholders.
A franchise in its’ simplest form is an agreement or license entered into by two parties, the franchisor and the franchisee.
A franchise is defined as an agreement between two parties, the franchisor and the franchisee, where by the franchisor grants a person certain rights to operate a business under a brand name. Further, the franchisee is also allowed to use a company business model to boost their chances of success. The franchise system also allows the franchisee to function independently, but must adhere to certain guidelines under the umbrella company.
To know more about different types of businesses for you specific business needs you can post your legal need on the UpCounsel platform. UpCounsel is dedicated to helping aspiring business owners realize their dreams. UpCounsel has an array of experienced lawyers from top law schools such as Harvard and Yale Law.