A business is defined by Wikipedia as a commercial enterprise or an organized group of people engaged in commercial, vocational, or economic activities for profit. The word “Business” also denotes the structured efforts of persons to create and sell goods and services to others for profit. In business, people are involved in all levels; management, product development, sales, marketing, and finance. To succeed in business, hard work, innovation, creativity, and hard decisions are required.
A company usually functions as one entity. The major parts of these entities are the stockholders, management, and staff members. All these parts play different roles in making profit through businesses. The main objective of any business entity is to make profits by selling its products and/or services, while using assets and resources properly.
In United States, businesses have two general types: sole proprietorship and partnership. A partnership, which is considered as the most common type of business in United States, consists of two or more unrelated partners that agree to share the responsibility of the business. These partners then become one unit by signing a master agreement. Each partner usually has a separate liability and wealth protection policy, while the business itself does not have any products or services to sell. The major advantage of a partnership business is that only two partners need to sign the master agreement in order to make the business into a partnership. Also, this type of business enjoys relatively less paperwork compared to other types of commercial law firms.
Another common type of business entities is a sole proprietorship. On the surface, it appears to be an independent entity like sole partnership, and there are even tax advantages associated with it. However, there are two major disadvantages of a sole proprietorship. First, a sole proprietorship is not liable for debts or taxes unless and until it sells its assets to pay them off. Second, partners in a sole proprietorship have no power of attorney or the ability to control the business themselves.
The third type of business entity seen in United States commercial law is a corporation. A corporation is formed for the purpose of conducting business affairs. It exists as a legal entity separate from its shareholders and owners. For many businesses, the creation of a corporation is a major benefit because it reduces costs, creates stability, and prevents legal issues that often occur with sole proprietorships and partnerships.
Although all three types of entities are beneficial, it is important to understand the difference between corporations, partnerships, and sole proprietorships so you can choose the correct option to best suit your business needs. Different businesses have different needs, so understanding the pros and cons of each option can help you better understand your business’ needs so you can choose the best option for your business. To do this, you will need to understand what these three basic options mean and why they are important to your business.