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Types of Company Formations and Operations

BUSINESS

Types of Company Formations and Operations

A business is defined in the Merriam Webster’s Collegiate Dictionary Tenth Addition as a body or set of bodies performing any or all of a variety of activities. In other words, a business is simply an entity organized by individuals or companies to carry on business, engage in a transaction, or engage in other similar actions. There are many kinds of business entities including sole proprietorship, partnership, limited liability company (LLC), corporation, etc. and a number of legal forms used to describe the various kinds of business relationships.

There are a number of ways to form a business entity including sole proprietorship and partnership. In most instances, sole proprietorships are the most common type of business entity. This is because ownership is shared by only one person. On the other hand, partnerships are more complex. Partnerships are considered legally separate bodies but actually operate as one. However, partners can split the profits from the business to avoid double taxation by using some legal maneuvers.

A general partnership is a simple kind of business relationship that does not have specific legal rights or privileges. The partners generally share in the profits, use their personal assets, and have limited liability. Partnerships can be limited, however, depending on the nature of the partnership agreement. Partnerships in a general partnership do not have the right to vote, retain directors, or have the power of attorney.

Another type of partnership is a limited liability company or LLC. A limited liability company or LLC is a legal entity that limits personal liability for debts of the partnership. In most instances, LLCs are formed to hold property for the benefit of all members of the partnership. All member’s personal assets are exempt from inheritance taxes.

One of the differences between a corporation and a LLC is the level of liability. A corporation is formed for the benefit of all shareholders. LLCs, on the other hand, are formed for the benefit of individual owners. The IRS considers an LLC separate legal entity from a corporation. As a result, an LLC has the same liability as a corporation. Individual owners are responsible for paying the taxes on his own.

A common issue among small businesses is the share capital or financing. Share capital is the money contributed by owners to the business. It represents the maximum amount of money that any one individual or group of individuals can contribute to the business. Businesses obtain financing from banks and other sources. If a business fails to obtain enough share capital from investors, then the owner will have to close his business and remove himself as a director or shareholder of the business.