Small Business Basics – What is a Small Business?
A business is defined by Wikipedia as a legal body corporate or partnership in commerce. A business is any entity organized for the purpose, either directly or indirectly, of running a business activity. Businesses may be sole proprietorships, partnerships, corporations, limited liability companies, public limited liability companies, and private partnerships.
A sole proprietorship is a single person owning and conducting the business. Examples are sole proprietor joint ventures, partnerships, and corporations. A corporation is a separate legal body organized for the benefit of the owners. Examples include limited liability companies, public limited liability companies, and corporations. A partnership is a joint venture between two or more individuals.
A corporation, as stated above, is a separate legal body but it will be taxed like a sole proprietorship. This is because unlike a sole proprietorship, a corporation cannot conduct business transactions in the name of another person or in the names of companies, LLCs, or other corporations it owns. A C corporation is a corporation that meets certain requirements related to assets, ownership, and capital. Partnerships and corporations are treated as C corporations at the time of distribution and are therefore taxed similarly to C corporations.
There are several main types of corporations. One is the C corporation, which is taxed as a pass-through entity. Its shareholders pay tax only once, the corporate tax rate. The main types of pass-through entities are partnerships, limited liability companies, and corporations. Business corporations are not pass-throughs, but they are treated as such by the IRS.
Limited liability companies and partnerships have additional tax benefits. Partnerships are taxed only once and share holdings between partners are tax deferred. Limited liability companies are taxed similarly to corporations and pass through them, but they have limited liability. The benefit to a limited liability company is that if the business is sued, all of the partners are individually liable for the damages.
The most common form of business formation is a general partnership. Generally, general partnerships are set up so that one business controls the other. An example of a general partnership would be a construction business and a home business. One partner makes improvements in a home, pays for the cost of building it, and then allows the other to use the property as his business. He receives a percentage of the profit from the sale of materials to the other person. In this type of setup, both partners are treated as owners of the business and both are taxed similarly to businesses.
Another popular business structure for many small businesses is sole proprietorships. This arrangement allows individuals to control large business or other financial activities without being personally responsible for those businesses. A sole proprietor is a legal structure that consists of only one owner. While sole proprietorships do not have many tax benefits compared to other business structures, they do have advantages including flexibility.
There are many other business structures available including limited liability companies, partnerships, corporations, LLCs, and sole proprietorships. Before deciding which business structure would best fit your small business, it’s important to understand how each one works. Once you have a good understanding of how business can be organized, you’ll also be better able to choose a business that will work for you. There are many different small business models to choose from and each one has its own advantages and disadvantages.
Limited liability companies (LLCs) are one of the most popular business structures for many reasons. The main reason for this is because an owner of an LLC can use his personal assets to cover expenses and liabilities of the business. An LLC will have no legal obligations and can set up bank accounts, pay employees, buy equipment, and carry out many other business operations. Limited liability companies can be set up quickly and are very flexible in how they operate.
Another option for a small business is a partnership. A partnership is formed when two or more people start or are joined together by a business agreement. Partnerships can be general partnerships, limited partnerships, or even one person or corporation owning a partnership. Partnerships are popular because partners each have a portion of the business that is given to the other partner.
Limited partners do not have unlimited liability and are not required to share their personal assets with other partners. With a general partnership each partner will have a portion of the business that is given to them and is based upon their performance. A limited partnership receives profits from the business and the other partners to share in the income and losses of the business. There are advantages and disadvantages to all forms of partnership, but some of the advantages include; cost saving since there are few legal fees, lower risk with joint ventures, and the ability to expand into new markets.