Types of Business Structures
Lesson 3 from: FAST CLASS: Business 101: Start-up ConsiderationsKaren Okonkwo
Types of Business Structures
Lesson 3 from: FAST CLASS: Business 101: Start-up ConsiderationsKaren Okonkwo
Lesson Info
3. Types of Business Structures
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Lesson Info
Types of Business Structures
next year are types of business structures and I know that this is something that is really a hot topic for a lot of people. And quite frankly, I would never claim that I'm an expert at it. It was one of the things that took me the longest when I first started with business, because I literally had no idea that there were eight different business structures, there's probably more, but I I know the eight of them. Um and it really just comes down to level of liability. That's really what I've determined is level of liability and and and responsibility. And so whether you are creative or you are an accountant or a lawyer, it really just, it's just really whatever is best for you. So I'm gonna go through just reading off the eight different business structures. And as you're hearing me describing each of them, ask yourself what is the most optimal for you as your own type of business structure? So the first one here is a sole proprietorship, So uh sole proprietorship is one individual or a...
married couple in business alone. So so soulful proprietorships are most common is the most common business form. And this type of business is simple to form and operate and you know, you can enjoy greater flexibility of management, fewer legal controls and fewer taxes. And um however, the thing about being a business owner here in this particular setup is that your everything falls, the responsibility falls on you. So the liability is on you, all debts incurred, it all falls on you. I want to see you, I'm saying business, we get that. Um a general partnership, so a general partnership is composed of two or more people, they're usually not married, um who basically agreed to contribute money and labor and their skill set to business. So each partner will basically share the profits, the losses, the management of the company and they all personally have equal liability for the debts of the partnership as well. Um, So in this particular situation, formal terms of the partnership are usually contained in a written partnership agreement, which I encourage for all forms of business and then a limited partnership. So a limited partnership is composed of one or more general partners and then one or more limited partners. So how this difference is that the general partners, they basically manage the business. They share fully in the profits and the losses. But somebody who comes in as a limited partner, they'll share in the profits, but they don't share the in, in in the losses. The losses are limited to the extent of their investment. So whatever they put in, it's limited to that. Limited partners are usually not involved in the day to day of operations of the business, like I mentioned earlier the next year is a limited liability partnership. So an LLP, um it's very similar to a general partnership except that a that normally a partner doesn't have personal liability for the negligence of another partner. So you usually find a lot of accountants and lawyers who adopt this particular business model. Um and and it says here that you need to still file with the Secretary of State because some of these particular business set ups, you don't need to file certain paperwork, so they're being clear that you do need to file with the Secretary of State. A limited liability limited partnership. So a limited liability limited partnership is a limited partnership that chooses to become an LLP by including a statement to the effect in its certificate of limited partnership. So this type of business structure um just shield certain general partners from my ability um and obligations to the L. L. L. P. Corporation. So a corporation is a more complex business structure. A corporation has certain rights, privileges and liabilities beyond those of an individual uh doing business as a corporation may yield tax or financial benefits, but these can be offset by other considerations uh such as increased licensing fees or decreased personal control. So corporations may be formed for profit or nonprofit and you know, for businesses who are a corporation, um sometimes you find that they have a lot of investors who are controlling the business. So when it says that you have, you have decreased personal control. It just means that your business is not structured in such a way where you have a lot of say in it. So as a creative, I don't typically encourage people to create a corporation, but again, it's dependent on what's best for you. A nonprofit corporation is a legal entity. Um, it's typically run to further an ideal or a goal rather than the interests of profit. Uh, many nonprofits actually actually serve the public interest, but some engage in private sector activities. So if your nonprofit organization plans to raise funds, they do require that. You oftentimes register under the charities program of the secretary of State and charitable activities may require additional registration and for nonprofits. Um, you do need to have a board. That was something that was new for me a long time ago when I decided to start a nonprofit, I was like, oh, it's just the business and I was carrying on and I realized that you have to file certain names and have meeting minutes and it's, it's very intricate. It isn't just though it's a nonprofit, you actually have to put a lot of time and energy of course and have a team of people with you, a limited liability company. So a limited liability company is formed by one or more individuals or entities through a special written agreement, usually an operating agreement. Uh The agreement details the organization of the LLC, including provisions for management, assign ability of interests and distribution of profits and losses. Um, LLCS are permitted to engage in any lawful for profit business or activity other than banking or insurance. And this is the type of business structure that I've chosen for my business is, um, it does pass the liability down to the individual, not on the business. And so it just, it just has made it a little bit more clean in doing my partnerships. So again, it all depends on what's best for you and your company.
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