What Are The 3 Types Of Businesses – There are many types of business. These categories differ based on who owns the business, what the business does in the market, and how it operates. The current business environment is dominated by a number of business entities and joint ventures.
A self-employed person is a business founded and operated by one person. This is the simplest type of business; one reason why it accounts for 74 percent of business in the United States alone.
What Are The 3 Types Of Businesses
The owner also makes all the decisions, enjoys the profits himself, boasts ownership, pays less taxes than a limited liability company (LLC), requires very little capital to start, and can use his assets to support business operations.
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On the other hand, personal property lending for this type of business exposes the owner to risk because the business has no limited liability. The life of a business also ends when the owner dies or leaves the job. As a result, it can be difficult for one person to raise capital. The damage is again borne by the owner himself.
A sole proprietorship is considered an informal type of business that makes it difficult for “official” businesses to obtain contracts or engage in “official” activities.
Unlike a sole proprietorship, a partnership is owned and operated with a minimum of two members and a maximum of 20 members. It is also easy to create and operate if the agreements are written at the right time. Again, it has no legal requirements to meet before incorporation and capital can be easily raised from partners.
The combination of know-how and skills of the partners ensures the debate on the right decisions and the adoption of the best decisions for the implementation of cooperative policies and procedures.
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Disadvantages of this type of business include; profit sharing between partners, disagreements between partners and limited business life.
It is a large business owned by shareholders or investors. Its initial capital can be easily obtained when the par value shares are listed on the stock exchange for purchase by the public. This type of business has limited liability, i.e. unless the corporate veil is breached, creditors will never recover the shareholders’ assets.
With various people pooling resources to become shareholders, the life of the corporation is unlimited. In most cases, professionals are hired to run or manage the business and risks are shared by all stakeholders.
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This type of business is difficult to start due to the legal requirements that must be met before incorporation, majority decision and double taxation. I E. tax of natural and legal persons
Types Of Business Organization
These are global or international businesses that manufacture and sell products in different countries. MNCs are large and all their worldwide operations are centrally managed.
With large investments abroad, multinational corporations import goods and services, allowing local manufacturers abroad to manufacture their products and have assembly and manufacturing operations.
They are known to create goods, services and employment opportunities that would otherwise not be available in the countries in which they operate.
Non-profit organizations are also known as non-business organizations. They are made up of people with common interests and are not for profit. Most of them pursue a social cause that benefits the society.
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Non-profit organizations operate on a “non-distributable constant”, i.e. excess income is used to meet goals, objectives and missions, rather than being distributed as dividends to shareholders in the winter. In order to avoid taxation, non-profit organizations must have charitable status or apply for tax exemption.
Franchises are businesses that are bought by individuals, with a percentage of the profits going back to the parent company. Franchisees must strictly follow the guidelines set by the parent corporation.
Most entrepreneurs choose a franchise because it is a good way to expand their business without the risk of debt; this is because the business is essentially growing from another party’s resources. Again, franchising guarantees rapid growth, so there is no need to fear competition.
Since the franchisor has a stake in the business, it ensures the quality of committed management and operations, eliminating the need to use resources to train and hire managers.
Comparative Feature Of Different Type Of Business Entity
A limited liability company (LLC) is established by at least one person through a written agreement. The contract contains various details and terms of the company including; issues related to governance, the distribution of profits and losses, and how profits are distributed among others.
Articles of Association are another important document that must be drafted when forming an LLC and supported by appropriate industry-relevant certificates. Limited companies raise capital by selling shares to the public and spread risk by issuing shares.
This is a type of combined business that is run and managed by trustees for the beneficiary. The person who sets up the trust is called a
Investment gains or accumulated losses are divided equally among the beneficiaries according to their interest in the trust.
Introductory Business Concepts
This type of business allows multiple parties to operate the same business under different identities with respect to assets or liabilities. The lessees share the commercial rights equally and each of them can transfer the commercial rights to any of the beneficiaries.
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Hi, I’m an MBA and CEO of . I am a digital marketer and entrepreneur with 12 years of experience in sales and marketing. Entrepreneurship is my passion and I have excelled in many industries with a focus on sustainable growth. You can generally find me online at the Academy. Let’s discuss these concepts starting with the simplest form of business organization, the sole proprietorship or sole proprietorship.
A sole proprietorship is a business wholly owned by an individual. It is the easiest and least expensive way to start a business and is often associated with small business owners, service providers and professionals such as doctors, lawyers or accountants. A sole proprietorship is the most common form of business organization and is relatively free of legal problems.
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A major disadvantage of sole proprietorship is unlimited liability, as the owner and the business are considered the same from a legal point of view.
A partnership is a legal association of two or more natural persons known as partners and co-owners of a for-profit business. Like possessions, they are easily formed. This type of business organization is based on a written agreement detailing the various interests and rights of the partners and should obtain legal advice and document the rights and obligations of each.
A business owned and operated by 2 or more persons, where each individual has rights as a co-owner and is liable for the debts of the business. Each partner reports the partnership’s share of the profit or loss on his or her personal tax return. The company itself bears no tax liability.
Partnerships must obtain a federal employee identification number from the Internal Revenue Service (IRS) using special forms.
Types Of Incomes
Each partner reports the partnership’s share of profits or losses on their individual tax returns and pays taxes on those profits. The partnership itself does not pay any taxes on its tax returns.
In a limited partnership, one or more partners who operate the business as a general partner and the remaining partners who are passive investors become limited partners and have only personal liability for their investment. They are called limited partners because they cannot be sued for more money than they put into the business.
Master Limited Partnerships are similar to commercial partnerships of companies listed on stock exchanges. They have many of the same advantages as corporations, ie limited liability, unlimited lifetime and transferable title. In addition, they have the added advantage that if 90% of their income comes from passive sources (eg rental income), they pay no corporate tax because profits paid to shareholders are taxed at the individual rate.
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Corporations are the most dominant form of business organization in our society. A corporation is a legal entity with most of the legal rights of a person, including the right to do business, own, sell and transfer assets, enter into contracts, borrow money, sue and be sued, and pay taxes. Since a corporation exists as a separate entity other than an individual, the corporation is legally responsible for its actions and debts.
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The modern corporation developed at the beginning of this century when large sums of money were needed to build railroads and steel mills and so on. and no individual or consortium can hope to raise them. The solution is to sell shares to many investors (shareholders) who receive a portion of the profit in exchange for their money. In order to protect investors involved in such large enterprises, their liability is limited to the amount of their investment.
Because it seemed like a good solution, corporations became a living part of our national economy. As rules and regulations develop about what a company can or cannot do, companies have acquired most legal rights such as these.
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