Before looking into detail of the types of business entities, we would like to introduce the definition of business.
Business is the trading activities from one person, a group of person, entity, and organization in which the purpose of those activities is for generating profit directly or indirectly.
Business is whatever size or nature of activities that could generate profit or return on what they invested directly or indirectly. The business could be formed in commercial or industry commercial transactions in the form of supplying goods or services.
The business rang from a very small entity consist of few members to a very large one that has a hundred thousand staff like Facebook and Google.
And the meaning of profit is the excess of income over the expenses for the period of time.
The following are the list of types of business entities. The list contains four types of business including Sole Trader,
#1: Sole Trader:
Sole Trader or sole trader-ship are the types of business entities that own, run, and manage by mainly one person. Mostly, sole trader-ship employ few employees and have not many business transactions.
Accounting records for the sole traders’ business also not much complicated as the others. This kind of business is normally formed by the entrepreneur and get many exceptions for legal and tax purpose.
The sole trader is not legally separate its debt from the entity one the business go into liquidating. Personnel assets might be used to compensate for the liabilities.
Some advantage of the sole traders are there are less legal requirements, probably got many tax exception, the owner control business and assets directly, and it is very flexible.
#2: Limited Liabilities Companies:
Most of the big companies or the corporation are registered under the limited liabilities companies.
Legally, limited liabilities companies the personnel assets of the shareholder or the owners of the companies are legally separate from the entity or company.
This type of company normally has a complicated management structure as well as the board of directors, many legal documents are required.
The shareholders of this type of the entity normally the companies as well as the individual. The legal documents may be differently required by different legal jurisdictions.
As its name, these types of business entities formed by at least two partners to carry the business. The partners of the business normally expertise in a specific skill or know-how.
Some disadvantages of these types of business entities in every one of the partners owe the liabilities of others. Normally, this type of business got many conflicts.
To form a partnership, the member normally done by partnership agreements.
Advantages of partnerships include:
- Less stringent reporting obligations – no requirement to make financial accounts publicly available, no audit requirement, unless the partnership has LLP status.
- Additional capital can be raised because more people are investing in the business.
- Division of roles and responsibilities and an increased skillset.
- Sharing of risk and losses between more people.
- No company tax on the business (profits are distributed to partners and then subject to personal tax).