The Three Most Common Types of Business Structure
The word business refers to any entity or individual engaged in business or commercial activities for profit. Businesses may be sole proprietorships, partnership or corporations organized for the purpose of conducting trade. Business can include the activities of manufacturing, processing, distribution, or retailing goods or services. In business terms, the term business also refers to the entire field of human activity involving production, buying, selling, and marketing of tangible items for personal, professional, and financial use. Business involves many aspects such as planning, organizing, investing, making choices, and reporting.
There are three common types of businesses: sole proprietorship, partnership, and corporation. Among these, the most famous ones are partnership, sole proprietorship, and corporation. Each of these has its own features, advantages, and drawbacks. Here are some examples of these business types:
A sole proprietorship is considered the most common type of business since it allows the owners to control all the business activities and decisions. An owner can use his or her own capital to run the business. He or she can also hire employees, get loans, buy raw materials, and make deals with suppliers. This allows the owner to earn a profit while giving priority to customer needs.
For sole proprietorships, the benefits include freedom to manage work force; ability to get credit for products; and flexibility to expand and develop. However, it has less potential to develop into a long-term enterprise. On the other hand, corporations are businesses where two or more people are related by blood, marriage, or adoption and have equal rights to share profits, give loans, and use property and resources equally. Unlike sole proprietorships, corporations require considerable investment capital.
The other most common types of organizations are partnerships. These relationships are between people, companies, nonprofits, and government agencies. Partnerships can be between two people who work together in providing similar products or services or between companies that produce the same goods and services. The most popular nonprofit organization among partnerships is the food industry since it can offer a large market, which is very flexible, as well as the fact that many partnerships can bring great cost savings.
Some other common types of partnership are limited liability partnerships (LLPs), public limited liability partnerships (LLP), and general partnerships. Limited liability partnerships are business to business partnerships where only the liability of the partnership is shared. Public limited liability partnerships (LLPs) are formed between a business and a non-business entity such as a nonprofit organization, an educational institute, a sports organization, or a church. An example of a general partnership would be a real estate venture between a landowner and a developer. It is the duty of the partners to handle their respective duties, despite the existence of any liability.