If you are starting with your own business then it’s very important that you start with your business plan. Write down the goals and commitments you plan to achieve through your business. But the first and foremost requirement is you should come up with what type of business structure you want to start with. There are many different types of business structures available and you can choose according to your requirement. In this article, we will discuss different types of business.
What is business?
A business is basically an organized effort of an organization to produce and sell products and services in order to make a profit. A business can be a small-scale and large-scale business. A business can be a for-profit entity as well as a non-profit entity.
If you are starting a start-up then it is really a great idea. A start-up fuels the economy. Today’s young generation is buzzing with ideas. The only thing they require is the need to put their efforts in the right direction. Nowadays start-ups are so much in pace that they have actually become the back- bone of the economy. In order to make their ideas into reality they must come up with the right business plan. Deciding a business plan is a big decision. It has a lot of implications. Make sure you take the right decision keeping in view long term perspective.
Few points to be kept in mind before choosing the type of business-
- What is the nature of your business?
- Your vision and long-term goals
- Tax needs
- Expected turnover (profit and loss)
- The size of the business; how much you want to expand
- Level at which you want to handle
Once you are clear in your mind with these decisions you can choose your type of business.
Different types of business are-
- Sole proprietorship
- Limited partnership
- Limited liability company
Let us discuss nature of each business in detail-
- Sole proprietorship- It is the simplest type of business. It is owned and operated by a single entity. All the things belong to a single person. It is quite easy to set- up. As the business belongs to a single person hence the owner is accountable for all the profit, liabilities, and everything that the business may encounter.Due to its nature, it is the simplest way to start a business.
As it is owned and operated by a single person, no registration is required but you might have to take a local permit depending upon the nature of your product and service. In this the owner is responsible for making all the decisions and has complete control over the company. The owner receives all the profit and also the profits are taxed only once. The only disadvantage you may face is you have the whole liability for the business, so if something happens your personal assets are at risk. Also, it gets difficult to raise funds.
- Partnership-As the name suggests it involves more than one person. There will be two or more partners. Partnership is a great idea as two are always better than one. In partnership all the responsibilities and liabilities are divided equally among the partners. A partnership model offers many benefits- you can use each other’s resources, brainstorm your ideas, and you will always go to a person to discuss the issues. It is very important that responsibilities and roles of each member are defined in writing. If you are opting for partnership you have to register your business with the authorized entity and also have to name your business officially.
- Limited partnership- a limited partnership is just like a partnership but it has limited interference of the partner. People who want to raise funding for their business generally opt for this model. If you are looking for a partner who keeps himself limited in day- to –day business operations and nor involved in taking any decisions then limited partnership is the best way. It will help you in getting investors. In this business type also, you need to register with the authorized entity. Moreover in limited partnership the investor is not responsible for debts and management decisions of the company.
- Corporation- a corporation is considered as a unique entity. It is considered separate from the owners. The corporation has its own scenario and does not dissolve when the ownership changes. It is basically a fully independent business who has multiple shareholders holding the stocks of the company. If you are a company employing multiple employees then you better list yourself as a corporation.
- Limited liability company- Limited liability company is basically a hybrid of partnership and a company. Its best part is that it can have any number of members and also it is not taxed as a separate business entity like corporations. All the profit and loss are moved from the business to LLC. It is best for small businesses but it is quite costly to form. Also, it requires a lot of paperwork and legal assistance.
- Non-profit- Non-profit businesses are those who donate all their profits for the charitable purpose. The name is pretty much self- explanatory. The money through business is kept to pay for its expenses and the rest is donated to charity. In this there is tax exemption.
- Cooperative- it is the type of business that is operated and owned for the benefit of the members of the organization. All the services are used by the members itself and there are no external stakeholders. All the earnings, whatever is earned, is shared among the members itself.
These are the different types of business.
A start- up should choose its business structure carefully. It will have a long-lasting effect on its business. How a business will work and operate will entirely depend upon the business model. One must write down all its requirements and goals like hiring employees, funding etc and then choose the right business structure carefully. If you are starting small then it’s better you go with the sole proprietorship and as your business evolves you can adhere to different business plans. Also, it is very important to determine the legal structure of the business.
According to the business plan you might have to register yourself and obtain a license and permit for its function. Hence, it’s very important to formally detail the business goals and objectives, its strategies and how it’s going to win the game. A detailed business plan must outline all these things. It will also be helpful in getting investors and then choosing the right business model will help you grow and flourish in your business.