A business cannot have efficiency without structure. If an organization does not have a proper structure, it will not obtain the well-oiled machine status that every company wants. In the business world, the structure is derived from the ownership style. In other words, the different types of business ownership determine the different forms of business structures. Each type has different traits that make it suitable for certain companies and unsuitable for others.
Choosing a business ownership structure is necessary for starting a new business. Sometimes even well-established organizations need to select or change their business ownership structure for reworking their existing business plans.
In this post, we will look at several different types of business ownership. We will discuss business ownership for small business owners, as well as for larger organizations.
The Common Types of Business Ownership
Here are the most common types of business ownership. Learning about these will help you determine which type best fits your business initiative and structure.
1. Sole Proprietorship
This is the form of business ownership that occurs when a person does business activities on his own but does not deem it necessary to register the company in any other way. In other words, there is no separate or other business entity. There is no distinction between the professional and personal assets of the business owner. Also, the business liabilities are the same as the owner’s personal liabilities. This means if something financially goes wrong, the business owner will be personally liable to fulfill the obligation.
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A sole proprietorship is a straightforward form of business ownership. It is also among the most common types of business ownership. If someone wants to start a low-risk initiative and run it on a trial basis for a while, this is the best option for them. Another benefit of this form is that it involves no additional taxes.
A partnership is also one of the most common types of business ownership. In a partnership, typically, two persons are involved. There are two types of partnerships: limited and limited liability partnerships. Since the term ‘liability’ is being used a lot here, let’s define what it means in terms of business ownership.
A limited partnership is one in which one partner has unlimited liability while the other is limited in his liability. The partner who has limited liability also has limited control over the business. He has less say in the major decisions taken by the business owners but also has fewer financial risks.
In the limited liability partnership, there is only one class of owners. There is no partner with more risk or more power. This means none of the partners has to bear unlimited liability. This type of business ownership shares the liability equally among the partners. In other words, one partner can protect the other from their mistakes.
Both types of partnerships do not have to pay any additional taxes.
3. Limited Liability Company
Although this sounds similar to a limited liability partnership, it is a different business ownership structure. This form of business ownership separates the owner’s personal assets from his professional assets. In other words, if the business gets sued or goes bankrupt, the house, car, and other savings of the business owner will be safe. He will not be obligated to pay for the lawsuits with his personal savings.
Like sole proprietorships and partnerships, limited liability companies do not bear additional federal income taxation. But depending on where the business is located, it might be subject to several other state taxes. LLCs are included in the self-employment category, so any taxes applicable to self-employment apply to LLCs too.
Having an LLC is a good choice for those who are willing to take a slightly more significant risk while looking to keep their personal assets secure.
There are a few types of business ownership under this category. There are very slight differences among them.
∙ C Corporation
This is a regular corporation, whereby its entity is kept separate from the owners. This means these corporations offer the highest protection of personal assets and savings. These corporations are given an advantage for funding. They can own stocks or shares, and when these shares are sold, cash is injected into the corporation. In contrast, the ownership and decision-making responsibilities are shared among the new shareholders.
However, it costs more to start a corporation than other forms of business ownership. Corporations are required to keep all accounting records and release regular financial reports. They are also required to pay income tax. In some cases, a corporation is subject to double taxation. First, they have to pay tax on the profits and the dividends they distribute among the stockholders.
A corporation is basically meant for those willing to take risks but is looking for good funding options to kickstart their initiative. They have the prospect of going public eventually, which means the end goal is to sell the stock to the public.
∙ S Corporation
This type of business ownership is a corporation that avoids taxation. It is created by filing a special election. Once the business officially becomes an S corporation, it does not have to pay taxes. The profits and losses are all passed to the shareholders. However, in certain states and countries, they still have to pay taxes above a certain amount in certain
Starting an S corporation is not possible for everyone. For example, in the United States, if you have over 100 stakeholders and any of them is not a US citizen, you cannot turn your business into an S corp.
∙ B Corporation
These are called benefit corporations. The missions of this type of business ownership are similar to those of non-profit organizations, but they are actually for-profit corporations. The goal of a B corporation’s stakeholders is to provide a public benefit. In simple terms, they strive for a social cause but are looking to earn a profit.
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∙ Close Corporation
This business ownership is similar to a B corporation. What differentiates a close corporation from other forms of a corporation is that the stock cannot be purchased by simply anyone in this particular business ownership structure. The stocks of a close corporation are only owned by those closely involved with the business. Further to that, all stockholders of a close corporation enjoy liability protection.
5. Non-Profit Organizations
A non-profit business ownership works in charity, religion, literature, education or science sector. These organizations exist to serve the common good. They do not pay any federal or state taxes on their income. All the money earned by a non-profit entity has to be invested back into the business. Any profits earned cannot be distributed among the members of the organization. They pay their employees, as that’s part of their expenses, but the stockholders do not take profits out of business.
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Similarity Between All These Types of Business Ownership
One thing that’s similar among all these types of business ownership is that they require a solid online presence to sustain in this day and age. A business that does not exist on the internet nowadays does not exist in the 3D world either. When someone hears about a company and its products or services, the first thing they do is search for it on the internet. If they cannot find the company name on a website, a social media platform, or a landing page, they assume it’s not real. In some cases, they assume that if a business is not on the internet, it must actually be not really legally registered.
Therefore, as important as it is for an aspiring entrepreneur to register a company, it is equally vital for them to purchase a domain and create a website to represent their business ownership. The good news is it is not hard at all to build a website these days. It’s only a matter of a few hours.
For example, if you decide to create a website on Strikingly, all you need to do is sign up for a free account on our platform, select one of the ready-to-use website templates, and use our user-friendly editor to add content to the web pages.
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Once you key in the text and upload any pictures that you want, you can hit ‘Publish’ and get your website to go live on the spot. You can continue editing and updating your content any time you like.
Using a website builder like ours for making and maintaining a website is cost-effective and gives you complete authority and control over your site. You don’t have to rely on a website developer every time you make some minor changes to your web pages.
In short, on the one hand, we are here to help you save budget in your website building process. On the other hand, we make sure your website looks professional and appealing and is easy to maintain. Whatever type of business ownership you have, you can create a suitable website for it on Strikingly.