A business entity can be organized in a number of ways depending on the forms its owners choose regarding legal liability and income tax treatment. There are four types of businesses which include;
- Sole proprietorship/sole traders
- Cooperatives; and
Forms of business organizations refer to aspects such as risk bearing, ownership, control and distribution of profit. One’s choice of a business entity depends on certain factors like the objective of the business, nature, capital required state of control, the scale of operations, legal requirements and so on. It is therefore important for the owner of the business to seriously take into consideration the ideal form of business he/she wants to venture into.
A sole proprietorship is a form of business organization owned and managed by one person. This person carries on a business without necessarily forming a separate company. This individual is the sole owner of the business entity. However, this individual can choose to associate his family or friends in this business or probably employ other people as employees though they will not be involved in managing the business. All the assets, income, losses and liabilities of the business are solely of the sole proprietor, this means that this individual is not in any way a separate entity from the business. In addition, there are a few legal formalities in operating and forming a sole proprietorship (Bouchoux 168).
A partnership is in existence if two or more persons carry on a business with a view to profit. These people can either be corporations or individuals. Generally, partnerships are preferable to corporations particularly from a standpoint of tax. Ostensibly, profits of partnerships entirely pass through the organization to the partners. Partners can share the workload; organize work rotas so as to set some time off and holidays. A partnership is only taxed once through the income of the partners. Partnerships are majorly used as forms of business by chartered accountants and lawyers and also by large commercial projects and small businesses as well. Usually, partners have an agreement that lays out particular aspects of the partnership such as when the partnership commences, who are the partners how and when it is to be managed among others. The limited liability partnership is the common business form for many law firms in many countries. In this particular form, every partner has a limited liability. This form of business is usually appropriate when all partners desire to play a role in managing the business. Just like in the proprietorship form of business, the law does not distinguish between its owners and the business. Losses and profits are incurred by all partners (Adamson 111).
Types of Partnerships;
- General Partnership; a general partnership assumes that liability, profits and management duties are all equally assigned to all partners. If a partner opts for an imbalanced distribution, then it should also reflect on the partnership agreement where the percentage that is documented in accordance to the preferences of every partner.
- Joint Venture; A joint venture actually operates in the same manner as general partnership although it is only functional for one project and none other after that. It could be considered as an ongoing partnership if partners in a joint venture continue the venture only if they file on that basis.
- Limited Partnerships; These could also be referred to as partnerships with limited liability which are quite complex when compared to general partnerships. In this type of venture, partners are at liberty of having limited input and limited liability with management decisions that attract investors who venture in short-term projects.
A company or a corporation is a business entity that is frequently used when carrying on business activities. A company is therefore a separate legal entity from its owners. The owners of the company are known as shareholders whose role is to provide the company with property, money or services which all belong to the company. This form of business can be incorporated at either the provincial or the federal level.
- Private Corporation; This type of company can be formed by one or two persons. It cannot sell shares or securities to the general public. Liability is limited to the capital invested and shares are not and cannot be offered to the public at large. There is a minimum and maximum number of persons that can hold shares ‘50’.
- Public Company; Liability is limited to the exact amount unpaid on shares that are held by shareholders. Its shares can be offered for sale to the general public. A public corporation must file prospectors besides filing incorporation documents with the appropriate securities commissions in the respective region.
- Federal Corporations; Public and private corporations can be federally incorporated under the law. A business organization that is federally incorporated must register in every province or county in which it transacts business (Goldman 98).
Cooperatives are a group of individuals who agree to pool their money together to work together in order to buy bulk. In this business, each member has equal rights irrespective of the capital they invest. All decisions and workload is equally shared and a manager is in most cases appointed for larger cooperatives.
Adamson, John E. Law for Business and Personal Use. Mason, OH: South-Western Cengage Learning, 2012. Print.
Bouchoux, Deborah E. Fundamentals of Business Organizations for Paralegals. Austin: Wolters Kluwer Law & Business, 2010. Print.
Goldman, Arnold J, and William D. Sigismond. Business Law: Principles and Practices. sMason, OH: South-Western Cengage Learning, 2011. Print.