OMG Digital Magazine | 320 | Thursday 2 August 2018 • PAGE 22
Business
Starting a Business :
The Seven Most Popular Types of
Businesses
Looking to start your own business ? Congratulations ! You ’ re onto something big - entrepreneurs like yourself are truly fueling the economy . To help you along , we ’ re here to explain the different types of businesses that you can choose from . So take notes , because this one is important to the foundation of your new business . ( Wuick tip : before you get started , you may want to create a business plan to help you better outline your goals .)
One of the first questions prospective business owners ask is , “ What type of business should I form ?” Indeed , the confusion surrounding this question often stops business ventures before they ever get started .
To clarify , there are seven basic types of businesses :
Sole Proprietorship A sole proprietorship is one of the most popular business types , namely because it ’ s one of the simplest and only requires an individual . In a nutshell , a sole proprietorship is a business that ’ s owned by just one person . An important thing to note is that there isn ’ t a legal or financial distinction between the business and the business owner , which means that you as the business owner are fully accountable for all of the profits , liabilities and legal issues that your business may encounter . The nice thing about a sole proprietorship is that you don ’ t have to fill out any forms or go through any legal procedures to declare this type of business . Instead , just by owning a business on your own , a sole proprietorship is automatically associated with your new business . Keep in mind , however , that depending on your product or service ( and your location ), you may need to access a specific license or other documents .
Partnership Two heads are better than one , right ? If that ’ s the philosophy behind your business structure , then a partnership might be the best choice for you . A partnership might be appropriate if your business is owned by two or more people . Keep in mind that with this type of business , business responsibilities , including financial and legal , fall upon each business owner . Depending on how the ownership is divided ( either equally or not ), there are different types of partnerships for you to explore from a legal standpoint . With that being said , a partnership does require that you register your business with your state and establish an official business name . After that , you ’ ll then be required to obtain a business license , along with any other documentation that your state office can help you with . Beyond that , you ’ ll also need to register your business with the IRS for tax purposes . Although this may seem like a complicated process , there are lots of benefits to a partnership , so if you ’ re looking to have a co-owner , don ’ t be afraid to go for it .
Limited Partnership A limited partnership , or LP , is an off-shoot version of a general partnership , and while it may not be as common , it ’ s a great bet for businesses who are looking to raise capital from investors who aren ’ t interested in working the day to day aspects of your operations . With an LP , there are two sets of partners , one of which is known as a general partner . The general partner is usually involved in the everyday business decisions , and has personal liability . On the other hand , there ’ s also a limited partner ( typically an investor ), who are not liable for debts and don ’ t partake in regular business management of said company . Just like a general partnership , if you enter an LP agreement , you ’ ll need to register your business with the state , establish a business name , and inform the IRS of your new business . Again , this option is the most common for those looking for investment dollars , so keep that in mind when exploring your partnership options .
Corporation A corporation , is a fully independent business ( when public ) that ’ s made up of multiple shareholders who are provided with stock in a new business . Most common is what ’ s known as a “ C Corporation ,” which allows your business to deduct taxes much like an individual - the only problem with this is that your profits will be taxed twice , both at the corporate level and at the personal level . Don ’ t let this fact deter you however - this is extremely common , and if you currently work for a company with multiple employees , that ’ s likely the business structure they ’ re using . Most likely , if you ’ re starting off as a smaller business , particularly one that only operates online , declaring yourself as a corporation wouldn ’ t be appropriate . But if you truly are a corporation , you ’ ll need to file very specific documents with the state , followed by obtaining the appropriate business licenses and permits .
Limited Liability Company ( LLC ) Next on our list is a Limited Liability Company , better known as an LLC . An LLC is a newer type of business that is a blend between a sole proprietorship and a corporation . Instead of shareholders , with LLCs , owners are referred to as members . No matter how many members a particular LLC has , there must be a managing member who takes care of the daily business operations . The main difference between an LLC and a corporation is that LLCs aren ’ t taxed as its own business entity . Instead , all profits and losses are moved from the business to the LLC members , who then , instead of having to report business finances on a corporate return , can report profits and losses on a personal federal tax return . The nice thing about pursuing an LLC is that members aren ’ t personally liable for business decisions or actions of the company in question , and there ’ s far less paperwork involved in creating an LLC as compared to a corporation .
Nonprofit Organization A nonprofit organization is pretty self-explanatory , in that it ’ s a business organization that ’ s intended to promote educational or charitable purposes . The “ non-profit ” aspect comes into play in that any money earned by the company must be kept by the organization to pay for its expense , programs , etc . Keep in mind that there are several types of nonprofits available , many of which can receive “ tax exempt ” status . This process requires filing paperwork , including an application , with the government for them to recognize you as a nonprofit organization . Depending on the parameters of your new business , they ’ ll be able to tell you which category you best fall under .
Cooperative The last on our list of seven popular types of business is what ’ s known a cooperative , or a business that ’ s fully owned and operated for the benefit of the members of the organization that use its services . In other words , whatever is earned by the cooperative is then shelled out among the members themselves , and aren ’ t required to be paid out to any external stakeholders , etc . Unlike other types of businesses , which have shareholders , cooperatives sell shares to cooperative “ members ,” who then have a say in the operations and direction of the cooperative itself . The main difference in the process of becoming a cooperative , as opposed to the other types of businesses listed , is that your organization must create bylaws , have a membership application and have a board of directors with a charter member meeting .
There are a number of good resources that outline and define them , such as this one . To simplify your choice of business type , first ask yourself a few basic questions :
1 . Is your business a charity or is it for-profit ? 2 . Is your business a partnership ?
3 . Do you want to file the business taxes under your social security number , or do you want your business to have a Tax ID ?
4 . How much personal liability are you comfortable with accepting ?
5 . How much control will your partner ( if you have one ) assume ?
6 . Will you have employees ? 7 . Will your company be owned and operated
democratically by its members with no single owner ? After you ’ ve answered these questions and have decided on a business type , the next steps are dependent on your state and local laws and ordinances , as you may need to fill out additional forms specific to your location and type of business . There are a number of books and resources for this . Many of them recommend using the Small Business Association as the starting point since they maintain local offices .
Finally , check your local and state laws regarding running a business out of your home , as zoning laws can sometimes be an important factor in your business decisions .