Consultants, freelancers, and other service professionals often work as sole proprietors, but it's also a good option for businesses that are more established, such as retail stores with only one person working. There are several advantages, including:. However, there are some disadvantages to having a sole proprietorship as well.
The owner is liable personally for any judgments, debts, or other liabilities of the business. They are required to pay personal income tax for any net business profits. The owner may also be exposed to endless legal liabilities and will need to pay back business debts personally. If they can't, the creditors might take some of their personal assets.
When going into a lawsuit, their car, home, and other assets are at risk. When established in the UK, SEs are a type of public limited company which can be formed as a subsidiary of another company or as a holding company. SE companies can also be created by mergers or from an existing PLC. Next you may be interested in reading about unincorporated associations. Documents needed for new companies include shareholder agreements and articles of association. Find out why having the former is a good idea , and how to prevent conflicts with the latter.
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The last on our list is what's known a cooperative, or a business that's fully owned and operated for the benefit of the members of the organization that use its services. In other words, whatever is earned by the cooperative is then shared among the members themselves, and isn't required to be paid out to any external stakeholders, etc.
Unlike other types of businesses that have shareholders, cooperatives sell shares to cooperative "members," who then have a say in the operations and direction of the cooperative itself. The main difference in the process of becoming a cooperative as opposed to the other types of businesses listed is that your organization must create bylaws, have a membership application, and have a board of directors with a charter member meeting.
This is one of the least common types of online businesses, although online cooperatives do exist, such as the outdoor goods store REI.
There are a number of good resources that cover the intricacies of starting a co-op, such as this one. If you're ready to start building your own business, Volusion is the quickest and easiest way to start your own online store.
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Andrea is a writer, photographer and Marketing Manager in Austin, Texas. She enjoys going hiking and eating sushi, but not doing both at once. Need protection for your online business? Learn why forming a limited liability company LLC could set up your company for success in our latest blog…. Find out here…. Thoughts, stories and ideas.
October 02, How much did you enjoy this article? Thank you for helping us improve our blog! Subscribe to Our Blog. For example, the wedding photographer may purchase all needed camera and video equipment from a larger corporation that sells such equipment.
Individuals known as shareholders can own a piece of that corporation by purchasing stock, which can help them potentially earn money and investment returns depending on how the business performs.
If the camera corporation is relatively small, its initial investors or shareholders may be family members and friends of the individuals who run the corporation. If the camera company operates on a larger level, there may be hundreds and thousands of more shareholders.
Profits earned by a corporation, as well as those earned by its shareholders, are taxed by the government. This is different, however, for S Corporations. This type of corporation passes along profits and losses to the shareholders themselves, according to the IRS.
For example, if the camera company was unable to pay its debts, the operators of that corporation would likely have to sell their business assets such as company real estate but not necessarily lose their unrelated personal assets, such as their own cars or homes.
Generally speaking, there are more risks as well as more potential rewards when operating a corporation.
For example, the camera company itself may not thrive with the more limited funding opportunities of a sole proprietorship. Conversely, the wedding photographer may not generate enough profit or revenue to justify a corporate structure for the business.
The limited liability company LLC is a popular type of company and business structure. In a corporation, the company itself is owned by the shareholders. In an LLC, the company can be owned by several partners, regardless of how much they invested in said company. LLCs also face unique tax situations compared to corporations and sole proprietorships.
Specific LLC reporting and tax filing rules can vary by state. The individual who owns the aforementioned wedding photography business and the person who operates the camera corporation may decide to combine their skills and business acumen to form their own wedding photography agency. This type of company could be considered a partnership. The website Entrepreneur notes there are two types of partnerships: general and limited. A limited partnership has both general and limited partners. In a limited partnership, the photographer and the equipment owner may still both act as general partners, but may also have limited partners as well.
These limited partners may be individuals who are providing funding but have no involvement in day-to-day operations, nor are they held liable if the company fails.
Partnerships also provide unique tax opportunities to the partners involved. Joint ventures are arrangements where two parties agree to pool together their resources and efforts to achieve a common task or goal, according to Investopedia.
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