What are the main types of business?

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As a businessperson, deciding on what type of company you'll lead is one of the most important decisions you can make professionally.

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Your choice of business model can affect your company's tax, formation costs, legal liability and overheads, among others.

These are the key business models to consider for your organization.

Sole proprietorship 

This is one of the most popular forms of business ownership. Small businesses with just one owner generally start off as sole proprietorships. This effectively means that all business decisions are under the charge of the owner. If the owner stumbles, so too does the business.

Sole proprietorship businesses do not require official documents such as government papers or IRS registration. It's important to note that these types of businesses are not taxable.

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Partnerships

There are two types of partnerships: general and limited. With a general partnership business, both owners invest their finance, labor, time, etc, and both are held accountable for any business debts incurred. This means that even if a partner invested the smallest sums, that person will be potentially just as culpable for all debts.

The good news with partnerships is that they are not taxable entities, but all partners are required to file an IRS 1065 form along with personal tax returns.

With general partnerships, no formal agreement is necessary, whereas limited partnerships do require a formal agreement between the involved partners. Limited partnerships enable partners to have a certain amount of protection when it comes to liability, relative to their investment or percentage of the business ownership.

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Corporation

Corporation businesses are separate and distinct legal entities, owners aside. When it comes to business models, corporations arguably have the most benefits in terms of rights and responsibilities that partners can enjoy, from loaning and borrowing money, entering contracts, hiring employees as well as owning assets and paying taxes.

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