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Do you want to kick start a new business enterprise and can’t think of which business structure to adopt? If yes, you are not alone. Every startup entrepreneur faces this problem of choice. All it requires is some thought to the type of business sector you fall into and how you plan to enlarge such business coast.
This tutorial is going to discuss immensely the type of business enterprise, their advantages and disadvantages.
Though not limited to these, the following are the main types of business enterprise.
A sole proprietorship business enterprise has a well defined business structure. This type of business enterprise is encouraged where business personal liability is not a major concern.
From a legal perspective, the owner of the business and the proprietorship are one and the same.
- Sole proprietorship is the easiest business enterprise to set up. It doesn’t require any documentation.
- Registration of the proprietorship isn’t required by the State.
- The business owner takes total control of the business and finalised all the decisions.
- Tax forms are easy, simple and straightforward.
- Liquidation of assets are easy upon the owner’s death.
- The proprietor is exposed to inexhaustible legal liabilities.
- A sole proprietorship cannot receive capital from an investor outside his business.
- There’s usually a great difficulty of receiving loans from banks.
- The business liquidated immediately the owner passes away.
The partnership is another type of business enterprise opens to an entrepreneur to form his business structure on. A partnership is another sole proprietorship enterprise that gives room for the business to house two or more owner at a time.
1. Partnership deed is very easy to form.
- It housed groups of entrepreneur with different skills and talents to bear the onus of running the business.
- If the deed so agree, a partnership could keep thriving well, even if one of the partners passes away.
- The partners are open to unlimited liabilities.
- There’s usually a conflict of interest in the partnership deed. This could end up to be management conflicts.
- Although the partners share the profit realize yet some may feel they are not compensated enough for their hard-work.
Limited Liability Companies
If you are actually concerned about the unlimited liability that will be open to your business and can’t risk any of your assets in a lawsuit, then the better business enterprise to set up is a limited liability company.
- The proprietors have a limited liability. There personal assets are shielded from the company debt and protected from judgments.
- Owners can decide how the business enterprise settles it tax.
- There is room for unlimited number of shareholders.
- The legal fee and accounting costs are costly compared to proprietorships.
- Limited liability company requires documentation of articles of incorporation with the government.
A corporations have the right to contract, buy and transact property. It can sue and also be sued by other parties.
- A Corporation’s attract skillful and talented employees.
- It continues to do well, even if separate from its stockholders.
- It’s the most difficult business structure and need the service of lawyer to begin with.
- It profit could be resulted to multiple taxation.
Choosing the type of business enterprise to setup demands some thought about the business structure and the way you want it to grow. If the business involves only you, a sole proprietorship isn’t a bad idea. But, if you are concerned about liability and risking any of your assets, you can consider limited liability company or a corporation.