Understanding Business Structure
What is Business? A business is simply defined as a legal entity or association engaged in commercial, civil, or financial activities for profit. Companies may be nonprofit or for-profit entities that perform activities intended to meet a social objective or further a humanitarian mission.
In most jurisdictions, a business is a separate legal entity from its owners, which are usually called the “shareholders” of the business. A shareholder is usually an individual, corporation, or group of individuals who own shares of a given business. One of the most common forms of ownership is a corporation. There are many variations on this theme including limited liability partnerships (LLPs), partnership, limited liability company (LLC), and sole proprietorship.
What is a S-Corporation? A S-Corporation is a form of company that has one or more members. Each member is responsible for his or her own portion of the companies’ profits. A partner in a partnership is considered to be responsible for the investment of his partner’s funds. An individual sole proprietorship is responsible for his or her own part. As with corporations, there are many variations of this theme including limited liability partnerships (LLPs), partnership, and sole proprietorship.
What is a Limited Liability Company (LLC)? A Limited Liability Company (LLC) is a type of business entity that limits the liability of its owners. Unlike partnerships, an LLC owns no shares of the business and therefore cannot be held responsible for the debts or other failures of the business. An LLC is similar to a corporation, except it does not require a majority vote or majority share of the shares in the business. Unlike a corporation, there are some differences between an LLC and a sole proprietorship.
What is a partnership? A partnership is formed by two or more people who share in the business of the partnership. Partnerships have many advantages over other business structures, but they can sometimes result in problems as well.
There are many other variations of business structure that apply to real estate, partnerships, LLCs, and corporations. Learning about each type will help you understand your own situation and what is best for you. You should consult a lawyer if you have specific questions about your business structure. Because owning a business can be risky, it is important that you understand exactly what the options are.
What about a sole proprietorship? A sole proprietorship is a legal document that describes who owns a business. Unlike a partnership, a sole proprietorship does not have any share ownership or profits. The only people who benefit from a sole proprietorship are the owners. Because the business is run by the owner, there are few restrictions on the owner’s abilities or the use of resources.
There are some unique types of business structures that include LLCs, partnerships, corporations, and limited partnerships. Learning about these options will help you decide which option is right for you. Before investing your time, money, and energy into starting a new business, take time to consider all of your options. Being informed about the options will help you make the best choice for your needs and protect you against future problems.