The Different Types of Business Ownership
If you’re going to start a business, you need to pick what type of structure with which you will operate. You might not know that there are actually quite a few different types of business ownership out there for you.
Each type of business ownership is different, so knowing what each one means will be helpful. Here’s a summary of all of the different types of business ownership you can have.
A sole trader is the easiest type of business to set up because all you need to do is just to start your business. You’re the only person involved in the business, but you’re not a legal entity. In contrast to other forms of business organisations, like corporations or LLCs, you don’t have to register as a business entity before you get started.
Private Limited Company
A private limited company is somewhat similar to a sole trader, however, the primary difference is that the company is a separate legal entity with its own rights and responsibilities. You’re not wholly responsible for it, and this means that for both legal and taxation purposes, there are more complex obligations to think about. A private limited company is often a way to avoid being directly financially responsible for the legal challenges faced by the company.
Another type of business structure is a business partnership. This is where you and your partners share the responsibility of running the business. You will be equally responsible for any losses the business makes, the bills for purchasing stock and equipment, and other similar things.
However, it’s not all bad. You all get to share in the profits of the business, although you do have to pay tax on your share of the money. It’s probably worth mentioning that your partner doesn’t have to be a person. A limited company, for example, can count as a partner in the business.
The general partnership is a business which is not incorporated and is made up of two or more owning parties, both of whom share the responsibilities of the business. All of the partners have personal liability for any and all debts and obligations the business has.
Legally, you’re required to report your portion of the profits and losses on a personal tax return.
Limited Liability Partnership
The Limited Liability Partnership, or an LLP, is designed to provide each partner with a share of the management of the company. There is a limited degree of protection for liabilities inside the partnership, and you will typically find that this is used by professionals like attorneys and accountants. However, non-professionals can also start an LLP if they want to.
Guarantee Company (Non-Profit)
If you’re a company who is limited by guarantee, then you will be typically a club, society or a charity as the prominent examples. A lot of these companies are non-profit, which means that they retain all of the profits for their own use or a different purpose, but they won’t give them to members.
Private Company Limited by Guarantee
Another type of private company that you get is a private company which is limited by a guarantee. This is set up by non-profit organisations like charities. What this means is that there’s no shares or shareholders to speak of, instead, you get members who are guarantors for the company.
Private Company Limited by Shares
The next type of option that we have available is the private company limited by shares. What limited by shares means is that the liability of shareholders is limited to the capital that they have invested, to begin with. So, the initial value of the shares and any premium paid in return for the shares issued to them by the company.
Community Interest Company (CIC)
Finally, we come to a community interest company. This is a special form of company which is a limited, non-charitable entity. It exists for the primary purpose of benefiting a community or pursuing a specific social purpose. The aim here is not to make a profit for shareholders, instead, it is to best facilitate the interests of the community, as the title may suggest.
As you can see, there are many different types of companies to work with. It is important to take a look at each individual example to find what will be best for your business. Selecting the correct company for your needs is often a challenge.
Creating and defining your business structure is very important. If you do not adequately organise and collect all of your needs together, you cannot hope to maintain a proper level of sophistication.
Your business is a very important aspect of your life, and so it has to be properly organised and categorised. To avoid any particular legal challenges, you may be wise to research each of the different business structures and then select the one that is most pertinent to your situation.
Most people will go for either being a sole trader or a limited company. These are the most common types of business structures, but you will find that you can experiment with a broad selection of options if you don’t necessarily fit into the obvious categories. You will find your ideal business structure if you take the time to check out all of the options on offer.
Naturally, you will face a whole selection of legal challenges if you don’t have the right registration or the optimum business structure for your needs, so make sure to take your time when picking the correct one. All of these business structures are designed for different situations, so you have to be prepared to sort through them to find what’s going to work for you. Yes, this can be quite tricky, but ultimately, it is worth it in the long run. You’ve got to be prepared to experiment with what’s on offer to find the optimum selection. If you can do this, you will definitely see the results.