If you're just starting a business, you're probably looking at the various types of business organization, trying to figure out which one will work best for you. While there isn't a universal answer to this question, there are advantages and disadvantages to each of these types of business organizations that can be important to know when you're starting your own business. By knowing the types of business organization you're looking at, you'll be able to make a more informed decision about the type of business you want to start.
Here are a few types of business organization to consider as you figure out how you'd like to start your business:
1. Sole proprietorship
Sole proprietorship is the simplest, easiest, and most common way of starting a business. This is basically the kind of business that grows out of a backyard or garage; somebody has a lot of paintball equipment, so they rent it out to their friends whenever they go paintballing. After a while, the rental fees they charge their friends pay for the equipment, and as they begin to make money on it, they start buying more expensive paintball guns, or upgrade the masks they're using. After a while, they're renting paintball equipment out to large groups every weekend, and they may or may not even have a business name yet.
A sole proprietorship is easy to run, because it only requires one person and a good sense of business. It can be very risky, however, because it isn't a separate business from you. While all of the other types of business organization are seen as being legally separated from you personally, the law doesn't consider your sole proprietorship to be any different from your normal bank account. If all you have at stake are a few new paintball guns, that might not be an issue, but if you've just taken out a large loan to establish a new paintball shop and your business suddenly tanks, you'll be responsible to pay off that loan personally. If you're going to open a business as a sole proprietor, you'll have a lot more hands-on control, but you'll have to be careful or you could lose your house to your creditors.
2. Corporation
Corporations are businesses that have been opened to shareholders, and no longer retain any direct legal link with the owners. The shareholders are the owners of corporations (and a corporation must have at least one shareholder in order to function.) The advantages of a corporation are the funding that can come through shareholders, corporate credit, and the legal separation from the founder of the corporation. While a sole proprietorship can require personal responsibility for finances, a corporation is allowed to declare bankruptcy without exhausting the bank accounts of the founders or shareholders.
3. Partnership
Partnerships aren't incorporated, but still allow shareholders (at least two.) By establishing a partnership, you still establish a separate legal entity, but you still have some direct liability. At least one partner in the business is required to take responsibility for the financial responsibilities of the business, which means that somebody will still be required to pay creditors if the business tanks. There's a greater level of separation, however, than with a sole proprietorship, and less separation than in a corporation.
4. Non-profit organization
Non-profit organizations are charitable organizations, not intended to make any profit for any of the founders. As a charitable organization, a non-profit organization is completely tax-exempt, which allows these companies to use their money fully for their intended purpose. There will have to be very careful accounts of all the expenditures and incomes of a non-profit organization, however; whether you pay the taxes or not, you'll still have to prove that you're not withholding a profit.
Corporate Credit Concepts specializes in "KEY PHRASE". For more information about "KEY PHRASE" and how it might benefit your business, please CLICK HERE for a free phone consultation.