Starting a business is one of the best decisions you can make in your life. However, there are four types of businesses, and you should know them before you embark on your journey. Let us look into some of them.
It is the most common type of small-scale business globally. Individuals who single-handedly run their businesses are known as sole proprietors who can pay personal income tax on their business profits. Many of these companies are what people on social media call ‘small businesses’ or the cottage industry. Such types of businesses require small capital support and hassle-free management. There are few restrictions when running it, and there are no additional federal taxes. Getting small business loans to start a sole proprietor business isn’t a big challenge. On the downside, you have unlimited liability, and it can be hard to raise money at first to pay off your debts.
Partnerships occur when two or more people pool their resources and decide to start a business. Unlike a sole proprietorship, you have to register your business with the government. Partnerships can be limited or unlimited liability. Having a partnership has its advantages, including that you can borrow a lot more than a sole proprietorship. You have a team that can help make the decisions, and you can even split up the losses without taking all the burden on yourself. The downside is that you have to divide everything, from profits to decisions, and you can also have unlimited liabilities, which can affect the financial aspects of the business.
A corporation involves various people and is a business that is separate from the owner. So, the owner is typically protected in paying all the liability. Unlike a sole proprietorship or partnership firm, you have many more options to raise money in corporations. From stocks to venture capitalists, the owner can seek many financial paths. However, it costs a lot more to get the business started and running.
Income from cooperation is distributed to the shareholders. The profits are also taxed. The benefits of a corporation are that the owner is cushioned against debts or losses and can sell his shares quickly to pay off the debts. In case of losses, the owner’s property is not seized to cover the debt. On the downside, starting and running a corporation is quite expensive. It requires complex paperwork and a lot more work to keep it running.
Limited Liability Company
An LLC, basically the good parts of a partnership and a corporation, are combined while managing the disadvantages of both types of businesses. A Limited Liability Company or LLC is almost like a corporation, but it offers the income advantages of a partnership. The advantages include being protected from debt and can share profits without double taxation. The disadvantages are that the law limits ownership in certain states, and the paperwork is quite complex and detailed. You need to set aside some money because the legal and filing fees for starting up are pretty high.
According to Lantern by SoFi, banks can offer small business loans to all businesses to expand or invest in property if they have a stable income.
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