Six Different Business Types Explained
If you’re looking to start your own business, then congratulations – entrepreneurs like you are fueling the economy, so you’re definitely on to something big. Getting started with your own business for the first time can be seriously daunting, with so many different things to get used to, and different strategies that you’ll need to become familiar with quickly in order to achieve success.
When getting started, you will need to create a business plan – this will give you a guideline to work with for the future and help with getting funding, creating partnerships and more. You’ll need to specify the type of business that you are running – here are some of the most popular.
#1. Sole Proprietorship:
This type of business is owned by one person – yourself – and is not a separate entity to yourself, with no legal distinction made between the business and business owner. It is an ideal option for those just starting out in business who want to get a feel for entrepreneurship and dip their toes into the water. Sole proprietorships tend to be the best option for small businesses, for example, if you’re offering beauty services, personal training, or selling handmade goods – but they can be any kind of business.
This is an ideal option for anybody who needs a helping hand when it comes to getting started with business, as you can partner up with somebody more experienced to help you get started and guide you when it comes to achieving success. This type of business must be registered for IRS purposes and the business, legal and financial responsibilities will be legally divided between yourself and your partner.
#3. Limited Partnership:
This type of business is ideal for entrepreneurs who are interested in raising capital from investors, who will not be active in the day to day duties of the company. If you are going to be pitching your idea to angel investors who will put money into a certain percentage of your company, then it will usually be a limited partnership.
If you’re looking to reach the next step in your business journey and have an established business with employees, then a corporation is an ideal business type. Bear in mind that your business does not have to be a corporation from the start; this can be a step up from any of the abovementioned business types. Your business is a corporation if it has multiple, independent shareholders.
An LLC is a blend of a partnership and corporation that offers lots of advantages while requiring less paperwork than some of the other business types. With an LLC, you can protect your personal assets and keep them separate from your business, but you also don’t have to worry about some of the requirements for corporations, like keeping minutes. LLCs work well for many types of companies, assuming you won’t be looking for investors.
Finally, if you’re starting a business for a charitable cause rather than self-gain, a non-profit is an ideal business type. The earnings will pay for the expenses of the company and any profit made is put into the cause. Non-profit businesses can apply for tax exempt status.
Which of these business types is right for you?