Starting a small business isn’t as simple as creating a product and selling it to customers.
If you’re considering starting a small business or are only interested in learning more about the industry, you should know about the different structures they follow. Educating yourself on all the facets of owning a small business can help you while you’re planning your launch. As a customer, it can help you better appreciate all of the hoops small business owners go through to serve you.
Depending on the classification, companies must adjust how ownership, finances, liabilities and taxes are managed. Check out the different statuses that small businesses may qualify for as reported by the Business Partner Alliance.
Partnership
A partnership exists when two or more people share ownership responsibilities. There are generally three types of categories this status falls into:
• General partnerships are agreements where owners share all assets, profits and financial and legal responsibilities.
• Limited partnerships reduce liabilities for owners depending on their investment percentages.
• Joint ventures limit the involvement of partners based on a specific period.
This category works best when partners are familiar with each other and know that they can trust their expertise.
Sole Proprietorship
The most popular type of small business structure is owned by either a single person or a married couple. This group has fewer tax responsibilities and receives more flexibility to run their operation. A disadvantage to a sole proprietorship is that all business debts and personal assets can be exposed during legal disagreements.
Corporation
Well-established companies often fall under the corporation category as shareholders own them. They are held to costly administrative fees, double taxation, and face all debts and liabilities. In order to be sold to public interests, a company must be classified as a corporation.
Limited Liability Corporation
An LLC structure is a combination of a corporation and a sole proprietorship company. Owners of an LLC are known as members and are protected up to a certain extent from litigation. It’s often considered the most flexible status and is an inexpensive venture to set up this type of business structure. A limited liability corporation is also popular because it’s unnecessary to have officers and directors or answer to shareholders required in other structures.
