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Different Types Of Business Markets
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Business Orientation: Product Orientation And Market Orientation
Before turning your business idea into reality, you need to choose the legal structure that will underpin it.
Read on to learn about the different business structures available for your small business and how to decide which one is right for you.
Different types of businesses are subject to different taxes by the US Internal Revenue Service (IRS) and state and local tax authorities.
How you structure your business depends on whether you work alone or with partners, how much personal commitment you are willing to make, and whether you issue equity to investors to get your business off the ground.
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A sole proprietorship is an unincorporated business owned and operated by a single person. Its main advantage is simplicity: a sole proprietorship is a standard business entity name for anyone selling a service or product themselves, and it does not require special registration. In addition, a sole proprietor has unlimited control over his business and his income is taxed once.
However, the ease of setting up a sole proprietorship is a double-edged sword, as it provides the lowest level of protection for sole proprietorships. Self-employed persons are fully responsible for the financial and legal obligations of their company. This means that if your business falls on hard times, your bank can go after your personal assets to pay off your business debts.
General partnerships are the standard form of partnership: a business owned by two or more people. Like sole proprietorships, general partnerships are taxed, meaning they are taxed only once on the partner’s personal income. In addition, general partners are equal participants in the company, which means that everyone has a say.
However, general partnerships are susceptible to the same disadvantages as sole proprietorships. Because there is no legal distinction between general partners and the partnership itself, all owners have unlimited liability for the partnership’s debts and losses. Creditors and claimants can access the partners’ personal assets, and general partners are liable for the affairs of all other partners.
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Like general partnerships, limited partnerships are owned by two or more individuals and subject to pass-through taxation. The main difference between LP and GP is the presence of limited partners who have limited liability to the extent of the capital invested in the business. However, every limited partnership must have at least one general partner whose liability is unlimited.
One downside of a limited partnership is that limited partners generally don’t have much say in the day-to-day running of the business. This can be difficult for a partner who is aware of personal responsibility but also has ideas about how to run the business more effectively.
The last type of partnership, lifelong learning programs, is owned by two or more partners and has a pass-through tax. Although LLP partners are liable for their own conduct, they are not personally liable for the conduct of other partners or for the debts and losses of the company.
The main disadvantage of the LLP business type is that it is not available to all businesses: LLCs are only for certain licensed professions, such as law or accounting.
Types Of Organizational Structures
C-corporations, or C-corporations, are one of the most common types of businesses and are the ideal ownership structure for a large corporation. This is because a C corporation is a legal entity completely separate from its owners, thus providing owners with the strongest protection from personal liability.
Another advantage of starting a small business as a C corporation is the relative ease of raising money. A C corpus can be financed by issuing shares. You can issue as many shares as you like and offer both common and preferred stock types.
One disadvantage of a C-corp compared to other types of businesses is that any C-corp is a complex business entity that requires an intensive filing and registration process, as well as extensive oversight through the preparation of articles of incorporation and the appointment of a board of directors.
Above all, however, the main downside to forming a C-corp is that you don’t benefit from pass-through tax status. This means that C corporations pay income tax twice: on the corporate income and again on the personal income of the owners and shareholders.
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Avoid the double taxation problem faced by S corporations or S-corps, C-corps. Like partnerships, an S-corp is a pass-through entity, meaning that instead of paying corporate taxes like a sole proprietorship, they are taxed only once, at the personal income level of the owners and shareholders.
However, this advantage is offset by fundraising restrictions and complex requirements to maintain S corporation status. For example, an S corporation can issue shares of common stock to up to 100 shareholders, who must be US citizens or permanent residents.
A benefit corporation, sometimes called a B corporation, is another type of for-profit corporation recognized by most US states. Although taxed in the same way as a C-corp, the incentives encourage companies to highlight their positive impact on society, their communities and the environment.
A benefit corporation is subject to the same requirements as C corporations, even if it does good things in addition to making a profit. In addition, the supporting company must demonstrate its commitment to a higher calling by publishing an annual report evaluating its social and environmental performance.
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Limited liability companies combine many features of a partnership with the features of a traditional legal entity. LLCs are legal entities separate from corporate ownership, thus protecting owners from personal liability for the company’s debts and losses.
An additional benefit of setting up a small business as a limited liability company is the tax flexibility it offers: LLCs can choose to be taxed as corporations (twice) or as pass-through entities such as sole proprietorships or S-corps.
The downside of creating a limited liability company is that the process is more complicated than a sole proprietorship or partnership. For example, an LLC must write and file articles of incorporation and appoint a registered agent.
A nonprofit corporation is a corporation that is exempt from taxation by the IRS because it promotes a social purpose that benefits the public in some way. In fact, the term non-profit mainly refers to the tax status of the company, as most non-profit organizations are incorporated as corporations.
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A major benefit of incorporating a small business as a nonprofit is the tax break: If your organization qualifies as a 501(c)(3) tax-exempt organization under the Internal Revenue Code, it does not have to pay federal income taxes.
However, non-profit organizations are extremely limited in what they can do and cannot use their profits for anything other than business continuity.
A joint venture is essentially a partnership between one or more separate business entities. In this type of business arrangement, companies agree to pool resources to perform a specific task, often on a temporary basis. It can be a specific project or, for example, the purchase of real estate and a joint operation.
The advantage of joint ventures as a business structure is that they allow participants to benefit from the resources of other participating companies in a single organization without losing their independence. However, the major drawback is that each participant is responsible for all costs and losses of the joint venture.
Chapter 7: Business Markets And Buying Behavior
Determining the right structure for your small business is one of the most important decisions you will make on your entrepreneurial journey. There are a number of things you (and any partner) should consider before making your choice, such as:
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The Consumer And Business Market
Try it 3 days free, no credit card required. By entering your email, you agree to receive marketing emails 2 Objectives To be able to distinguish between different types of business markets. Identify key characteristics of business customers and operations. Understand several attributes of business product demand. Familiarize yourself with the main components of a shopping mall. Understand the stages of a company’s purchasing decision process and the factors that influence the process. Describe industry classification systems and explain how they can be used to identify and analyze business markets.
Business-to-Business (B2B) Markets Occur when an individual or group purchases a certain type of product for resale, direct use in the production of other products, or use in general operations. There are four categories of business markets:
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