Let’s talk about business and how many types and forms of business ownership are there. We want to clear something first, that may be vague to you. Types of business, types of business ownership, forms of business and forms of business ownership are all same terms. There is no difference between them so don’t ever get yourself confused on that.
Now, how many types of business ownerships are there and what are they? If you have missed our article about 6 low investment profitable business ideas, click here. In that article we mentioned that there are two types of businesses. First, in which you sell your services to consumers either through your site or by registering on an online platforms etc. Second (a bigger game), in which you create a platform which allows audience to register their services or companies and work.
Actually, these are the two ways of selling your services or doing business. Types of business ownerships are discussed below with their detailed description. You choose one of the following type of ownership for your business and then sell your services according to the two mentioned above.
Types of Business Ownerships
Following are some important types of business ownership and you should choose the one that suits your nature and your business the most.
Sole proprietorship as they name suggest refers to a business owned and run by single person. There are no partners and no investors. The business owner invests and runs the business alone. This type of business is simplest in terms of understanding the structure and easiest to set up.
It’s one of the most famous type of business ownership and online businesses follow this type because of its simplicity. And we all know that simplicity is the ultimate sophistication. The overall responsibility of the business lies on one owner.
Sole proprietorship doesn’t really mean that you can’t have employees or managers working for you. It means that business can have only one owner or boss. However, this form of business ownership is highly recommended for running small businesses mostly.
Business owner knows everything about legal notices and bank statements. Owner faces and handles legal notices and financial issues himself because there is nothing hidden between the business and the business owner. Click here to see pros and cons of sole proprietorship form of ownership.
Partners as we know means something that is shared between two or more persons. Partnership is another commonly followed type of business ownership and there are some important factors everyone needs to understand.
Partnership means two or more persons own a business. Their responsibilities depends on the agreements they have agreed upon. Most commonly followed partnership is that in which partners have equal division of responsibilities, tasks, working hours, investment and profit and loss. Partnership can be uneven as well. For e.g. Silent partners only invest and earn without taking part in any of the business activity. Their profit percentage is comparatively low than the business in which they are active.
Summary is that business owners sign an agreement before setting up the business and the share of responsibilities, time, work, profit and loss is decided. The decision making is done when all the partners are agreed. There are different types of business partnerships, click here to know more. Click here to see the pros and cons of “partnership” form of business ownership.
Limited partnership is also a type of partnership but it’s so much followed worldwide. Many sites and books state it as one of the type of business ownership due to this. Limited partnership refers to the partners that are silent. See the example given in the previous section “Partnership”.
Limited partnership involves two types of partners. The general partner that runs business and is involved in all the activities. Second, the limited partner (investors) who aren’t part of any business activity but just invest and take profit as decided.
The overall responsibility of handling everyday business activities lies with the general partner. Whereas, the investors are only responsible for raising the capital and making the business financially stable. Both types of partners in limited partnership needs to look and choose their partners carefully. Click here to see pros and cons of limited partnership.
When it comes to corporation you must know that it’s about the shareholders. A corporation is a type of business in which multiple shareholders take part and enjoy limited liability and their involvement is limited too. In simple words, shareholders owned and possesses companies and handle their affairs. Starting a new business whether it is online or not and listing it as a corporation is not a good move.
Declaring your business corporation is appropriate if you are running a successful business with many employees working for you. Directors are appointed and they run the business for the shareholders. The profit is shared according to the agreement signed by everyone. The amount shareholders invest or put in the company makes sure how much share they will get. Corporation is considered to be one of the most complex and complicated business type in context of understanding the legal structure and tax requirements. Click here to see advantages and disadvantages of Corporation.
Limited Liability Company (LLC)
Limited liability Company also famous as LLC is another type of business ownership. The taxation is much different as compared to the single-entity method of corporation. LLC is considered to be more effective and provides flexibility to the nature of partnership. An article of organizations document is required to file with your secretory.
In addition to this, sometimes you are required to file an operating agreement as well. Operating agreement means how the LLC is structured. Doctors and lawyers mostly follows LLC form of business ownership. LLC formation rules vary state to state, that’s why you need to know the formation if your business will expand to other states as well.
Creating LLC based organization or business instead of corporation is a better choice. One example is less paper work in LLC. LLC form of business ownership is famous for doing business online. Click here to see pros and cons of Limited Liability Company (LLC).
As the name suggest, this type of business organization is non-profit and is usually followed for educational and charitable purposes. If you want to start a non-profit organization, you need to fill some paperwork as government needs to know about it. You can get a tax exempt status in the state or in simpler words your organization becomes tax-free. But keep in mind that for this type of business ownership, you are not the one to decide and only government can give you the rank of non-profit organization after doing analysis.
Non-profit organizations are allowed to pay salaries to their employees. Private owners usually owns a for-profit organization but a non-profit organization isn’t owned by private owners. Feeding America, Red Cross, AmeriCares, United Way and Feed the children are among the world’s largest non-profit organizations.
Cooperative is a form of business ownership in which the profit is shared among the members of business only and not the stakeholders from outside. This type of business is owned by members of organization and profit and loss is all on them.
It’s compulsory for your business or organization to have a board of directors and membership application criteria. If you are thinking of starting an online business, don’t go for cooperative form of business ownership as it’s the least common. Cooperatives can be of either incorporated or unincorporated types.
The three famous types of cooperatives are producer cooperatives, worker cooperatives and consumer cooperatives. Click here to see pros and cons of cooperative form of business ownership.
Understanding franchise business type is quite simple if you know about two parties that are involved. The franchisor and the franchisee. The franchise is owned by the franchisor and franchisor do agreements with the franchisee allowing them (franchisee) to run business under the name of their (franchisor) brand name.
Some franchisors restrict their franchisee to follow the business model and strategies of the company. However, some left it as an open choice for franchisee whether they want to opt their own business plans and strategies. Just like business plan, model and strategies, profit share vary from franchise to franchise.
We have many franchise examples of food, clothing and shoe brands like McDonald, Outfitters and Nike etc. Bigger brands like these three don’t really focus on only one business type i.e. Franchise. They follow hybrid of 2 or 3 business types and sometimes more. Click here to see the pros and cons of franchise business type.
We hope that you are now pretty much clear about how many types of business ownerships? And what are the types of business ownerships? Comment us below and tell us about how much you like this article. There are also some sub-categories of few of these forms of business ownerships like S Corporation. Share which business ownership you like or suits your business the most.