Types of Businesses

It’s one thing to dream about running your own business, but its another thing to actually do it.

There are three main types of business organizations

Sole Proprietorships

Partnerships

Corporations

Of course there are some “special” types of business organizations too.

Sole Proprietorship

The most basic of all business legal structures is the sole proprietorship. For new start-ups the choice of becoming a sole proprietorship is the simplest of all business forms but is it the best? Learn the pros and cons of a doing business as sole proprietorship.

What is a Sole Proprietorship?

A sole proprietorship is a business of one without corporation or limited liability status. The individual represents the company legally and fully. Common proprietorships include part-time businesses, direct sellers, new start-ups, contractors, and consultants.

Advantages of a sole proprietorship

Quicker Tax Preparation: As a sole proprietor, filing your taxes is generally easier than a corporation. Simply file an individual income tax return (IRS Form 1040) including your business losses and profits. Your individual and business income are considered the same and self-employed tax implications will apply. Lower Start-up Costs: Limited capital is a reality for many startups and small businesses. The costs of setting up and operating a corporation involves higher set-up fees and special forms. It's also not uncommon for a lawyer to be involved in forming a corporation. Ease of Money Handling: Handling money for the business is easier than other legal business structures. No payroll set-up is required to pay yourself. To make it even easier, set up a separate bank account to keep your business funds separate and avoid co-mingling personal and business activities.

Disadvantages of a sole proprietorship

Personally Liable: Your small business in the form of a sole proprietorship is personally liable for all debts and actions of the company. Unlike a corporation or LLC, your business doesn't exist as a separate legal entity. All your personal wealth and assets are linked to the business. If you operate in a higher risk business such as manufacturing or consumables, the cost to benefit ratio is favorable toward a corporate structure. Lack of Financial Controls: The looser structure of a proprietorship won't require financial statements and maintaining company minutes as a corporation. The lack of accounting controls can result in the demise of your small business. No matter the legal structure of your business, take time to set up the proper financial statements for your company. Lonely at The Top: Being a business of one can be lonely. All the decisions, actions, and results rest on you. Are you able to work alone and be productive? If not bring in a partner can be necessary for your small business survival. Difficult to Raise Capital: Imagine your business in 5 years. Will it still be a business of one? Growing your small business will require cash to take advantage of new markets and more opportunities. Outside investors will take your company more serious if you are a corporation.

Forming a sole proprietorship

From the IRS's perspective, your small business is a sole proprietorship unless you have registered it as a corporation or other business structure such as an LLC. Setting up your proprietorship often does not require registration of the business. If you are planning to use another name or business name to operate your company, state laws will require a trade name registration or filing of your company name.Choosing the best business structure for your business will depend on a host of individual factors including your type of business, tax situation, industry liability, among others. Your choice of business structure will have legal and personal implications. Work with your business professional team of a lawyer and an accountant to determine the type of business structure best for you.

Partnerships

A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested.

How are partnerships formed?

In civil law systems, a partnership is a contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise; contribute to it by combining property, knowledge or activities; and share its profit.

Partners may have a partnership agreement, or declaration of partnership and in some jurisdictions such agreements may be registered and available for public inspection.

Advantages of partnerships

One big advantage of a general partnership is that you don't have to register with your state and pay an often hefty fee, as you do to establish a corporation or limited liability company. And because a general partnership is normally a " pass through" tax entity (the partners, not the partnership, are taxed unless you specifically elect to be taxed like a corporation) filing income tax returns is easy. Unlike a regular corporation, there is no need to file separate tax returns for the corporate entity and its owners. But given that the business-related acts of one partner legally bind all others, it is essential that you go into business with a partner or partners you completely trust. It is also essential that you prepare a written partnership agreement establishing, among other things, each partner's share of profits or losses, day-to-day duties and what happens if one partner dies or retires.

Disadvantages of Partnerships

major disadvantage of doing business as a general partnership is that all partners are personally liable for business debts and liabilities (for example, a judgment in a lawsuit). While it's true that a good insurance policy can do much to reduce lawsuit worries and that many small, savvy businesses don't have debt problems, it's also true that businesses which face significant risks in either of these areas should probably organize themselves as a corporation or LLC.

Corporations

A corporation is a legal entity (technically, a juristic person) which has a legal personality distinct from those of its members.The defining legal rights and obligations of a corporation consist of the capacities (i) to sue and to be sued, (ii) to have assets, (iii) to employ agents, (iv) to engage in contracts, and (v) to make by-laws governing its internal affairs. [1] Other legal rights and obligations may be assigned to the corporation by governments or courts. These are often controversial.[2]

Structure of Corporations

How Does a Corporation Conduct Business? A corporation conducts business through a chain of authorized representatives. The shareholders are at the top of the chain. The shareholders, however, do not directly manage the corporation's daily affairs. Instead, the shareholders meet at least once each year to elect a Board of Directors.Corporations must have at least one director, but there is no upper limit. The directors' job is to make general business decisions for the corporation. Their decisions are then implemented by the corporation's officers, who are appointed by the directors each year at a directors' meeting.The officers consist of at least the following: president, treasurer, and secretary. The president is responsible for managing the corporation's daily operations. The treasurer manages the corporation's money, while the secretary maintains the corporation's nonfinancial books and records. Corporations may also have one or more vice presidents. A vice president's duties may vary, depending on the corporation's needs. For example, the corporation may have vice presidents for sales, marketing, operations, personnel, and so on.

Advantages of corporations

Currently, the modern business corporation is the dominant type of corporation. In addition to its legal personality, the modern business corporation has at least three other legal characteristics: (i) transferable shares (shareholders can change without affecting its status as a legal entity), (ii) perpetual succession capacity (its possible continued existence despite shareholders' death or withdrawal), (iii) and limited liability (including, but not limited to: the shareholders' limited responsibility for corporate debt, insulation from judgments against the corporation, shareholders' amnesty from criminal actions of the corporation, and, in some jurisdictions, limited liability for corporate officers and directors from criminal acts by the corporation). [1]

Disadvantages of Corporations

Doing business through a corporation carries several tax disadvantages. Because a corporation has its own existence, it pays taxes on its own income.

However, if a corporation has losses, only the corporation, and not the shareholders, can claim those losses as a tax deduction.

Cooperatives

A cooperative often referred to as a co-op or coop) is defined by the as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise[1].

A cooperative may also be defined as a business owned and controlled equally by the people who use its services or who work at it.

Types of cooperatives

An old and widespread form is the consumers' cooperative, in which people organize for wholesale or retail distribution, usually of agricultural or other staple products. Traditionally, membership is open, and anyone may buy stock. Goods are sold to the public as well as to members, usually at prevailing market prices, and any surplus above expenses is turned back to the members. Money is saved through direct channeling of goods from producer to consumer.

Unions

Some workers choose to organize. When they do to gain rights or benefits, they form unions.

Unions—A Definition

A trade union or labor union is an organization of workers who have banded together to achieve common goals in key areas such as wages, hours, and working conditions, forming a cartel of labour.

Types of Unions

Traditionally, there have been two main types of labor unions in the United States: craft unions and industrial unions. A craft union organizes workers employed in the same occupation or craft, regardless of where they work. Examples include unions of electricians, carpenters, and printers. Craft unions descend from the guilds of printers and shoemakers that started the labor movement in the United States.

Closed Shop

In North America a closed shop is a business or industrial factory in which union membership (often of a specific union and no other) is a precondition to employment

Union Shop

union shop, which does not require employees to be union members as a condition of employment, but does require that they join the union or pay the equivalent of union dues within a set period of time following their hire.

Right to Work Laws

A Right to Work law secures the right of employees to decide for themselves whether or not to join or financially support a union. However, employees who work in the railway or airline industries or on a federal enclave may not be protected by a Right to Work law.

Mediation

Mediation is a voluntary collaborative process where individuals who have a conflict with one another identify issues, develop options, consider alternatives, and develop a consenual agreement. Trained mediators facilitate open communication to resolve differences in a non-adversarial, confidential manner.

The Central Goals of Mediation are to: Reduce obstacles to communication between participants Address the needs of everyone involved Maximize the discovery of alternatives Help participants to achieve their own resolution Provide a proven model for future conflict resolution

Arbitration

Arbitration is an alternative to a lawsuit, but the final decision is just as legally binding. Collective bargaining agreements and other employment contracts might require arbitration to resolve union-employer or worker-employer disputes, instead of lawsuits.

Strike

Strike action, often simply called a strike, is a work stoppage caused by the mass refusal by employees to perform work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became important in factories and mines. In most countries, they were quickly made illegal, as factory owners had far more political power than workers. Most western countries partially legalized striking in the late 19th or early 20th centuries.

Lockout

The strongest tool that management has against unions.

The company blocks workers from entering its buildings until they accept its contract terms.