A business can be loosely defined as any entity or organized set of people who engage in commercial, productive, or socio-economic activity. Companies may be either for-profit or non-for-profit entities that perform an array of activities in order to meet a social objective or further an educational goal. There are many different types of businesses including retail stores, franchises, and service providers, but the most common form is the corporation. Although many people use the term corporation when talking about business, it is actually an informal term that covers a wide range of business structures and individuals. The following are some of the more common types of businesses:
A retailer refers to a main article of commerce that sells consumer and other goods. Retail stores often include groceries, electronic stores, and clothing stores. Franchises are privately owned businesses that allow owners to reap the benefits of economic development by using their brand name to sell goods and services under another company’s name. Service businesses provide a range of personal, professional, and organizational services and operate on a for profit basis. These businesses may be privately owned, but many large corporations utilize franchise businesses.
A partnership is a formalized relationship characterized by a board of directors elected by the partners. Partnerships may be limited liability companies (or LLCs), which are corporations in which the partners participate passively. Limited liability companies have limited liability for the partners’ debts and losses, while a corporation has unlimited liability. Partnerships may be publicly traded or controlled by a board of directors. A partnership may receive dividends or capital gains, but not until the partnership is registered with the appropriate tax authority.
A corporation is formed to undertake multiple transactions between its members. Corporations may be publicly traded or privately traded, but all transactions are conducted in a corporate context. Partnerships may not be formed as a separate legal entity, depending on the type of partnership.
As previously noted, many businesses incorporate as a sole proprietorship or a corporation, but there are other ways to structure business that do not conform to usual modes of doing business. For instance, many partnerships are originally set up as sole proprietorships or corporations, with one or more members acting as co-owners. Other ways of structuring business include one member owning and operating the partnership, one partner serving as the chief executive officer, and many partnerships employing some variation of this form of structure.
One way to incorporate a business is to create a general partnership, which is considered a separate entity from the main article of the partnership. For example, Creamery A and B start-up with one director, while Creamery C starts up with two directors. This is the main article of the partnership and the two separate entities created are considered the partners in the venture. Similarly, although a partnership can have only one director, if the partnership were to incorporate as a corporation, each partner would be considered a shareholder and would have the same rights as any other shareholder.
Other ways of structuring a small business is to set-up a limited liability company, commonly referred to as a LLC, and use it to shield personal and business liabilities. Limited liability companies are much more stable than corporations because the partners are restricted in the liability they are held accountable for. Also, unlike partnerships, a limited liability company does not have to have a board of directors and is not required to submit annual reports to anyone other than themselves. Moreover, since the LLC has only one main article of debt and equity, there is no need to provide the funds necessary to pay employees, rent offices, buy equipment, and so forth.
In short, a partnership is a complex form of business structure that often requires special legal procedures. On the positive side, the profits of a for-profit business are exempt from taxation, while liabilities of a for-profit business are limited to the liability of the owner. For a small business entrepreneur, incorporating a partnership will provide greater flexibility in dealing with the various aspects of the business such as finances, technology, and human resources.