When you’re forming a company and formalizing your new business, there are many types of ownership that you should consider.
What are the different types of business? There are four types of businesses that you should consider. First is the sole proprietorship.
Read on more of this article to learn more!
Firstly, you have a sole proprietorship. Derived from its name, the sole proprietorship is an unincorporated company owned by one individual. It is also considered the least complicated and simplest type of business ownership. In contrast to other types of business and business ownership, this type of business does not produce a separate legal identity for the business. As a result, the owner of the business and the company possess the same identity.
However, a crucial distinction and consequence you need to consider is that, as the owner, you will have to be fully responsible and accountable for the business liabilities that the company will incur.
For instance, you can set up accounting services in the Philippines. If it has to be under a sole proprietorship, then you cannot have to create a separate legal entity for the business. You can stick with a sole proprietorship if it’s at a low rate.
Secondly, we have the partnership type of business model. In a partnership, the business is maintained by two (2) plus people. Partnerships use flow-through taxation, much like the sole proprietorship models. However, in a partnership model, the company’s income is treated as the owner’s income, which is only taxed once.
There are several types of partnerships.
Limited Liability Capacity (LLC)
The most flexible type of business model includes the limited liability capacity (LLC). The LLC combines some of the best aspects of partnerships and corporations. The LLC model keeps the tax benefits of sole proprietorships and the corporation model’s limited liability. In an LLC, you have the freedom and flexibility to choose your tax treatments.
However, there are conditions regarding the taxing for an LLC company. One instance is that if the LLC chooses not to be treated as a corporation, it will still keep its flow-through taxation status. In addition, you get several benefits if you obtain the LLC status.
Lastly, we have the corporation type of business. Although they are a bit more complicated, they are also a good choice when starting your business. In a company model, you and the business are a separate legal entity created by shareholders. Thanks to this, the owners become safer from liabilities by incorporating a business.
Moreover, if one of the owners passes away or declares bankruptcy, the company is dissolved.
Compared to the other three, it can be harder to form a corporate structure and a company because it has many requirements, such as the Articles of Incorporation, which must be drafted.
The nuances and complications of businesses can be tricky. However, no one size fits all. As a result, you need to be careful when thinking about what business model you will go for.
Angelo Castelda works as a contributor for a news magazine in Asia. He loves to learn and understand diverse cultures and aims to share through his writing his experiences around the world.
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