Forms of businesses
Have you ever wondered exactly what the difference is between a partnership, a business, and a corporation? Business is the all-inclusive term we use to mean, basically, a group of people working together to make profit.
Here are some of the different forms of businesses:
This is a business owned by one person. It needs no charter, has few costs, and that person gets to be greedy and keep all the money to his/her self. Sounds great, right? The problem is, of course, that a one-person business canít make as much money as a large business, the owner will have to work very hard, and if the business loses money, the loss translates directly to the owner.
This is a business thatís a lot like a proprietorship, but more than one person owns it. Again, there are fewer costs and regulations, but still it is difficult to raise as much money as a larger business. Also, the owners have unlimited liability, as does a sole proprietor: any debts incurred by the company must be paid by the owners, even if they have to use their own personal property.
This is, again, composed of one or more partners, but some have only limited liability. That is, they can only lose the amount of money they invested. However, these limited partners are not involved in the day-to-day business of the company.
A corporation is viewed as a separate "legal entity," meaning that the personal property of an owner is not at stake as in unlimited liability. Corporations have limited liability, so owners only lose what they invest. Corporations typically have many different owners. If youíre a stockowner, then you own part of a corporation! Typically, itís just a very small part of the corporation. You can only lose the amount that you paid for your stocks, no more. Corporations are also able to raise much larger amounts of money than partnerships. However, there are a few downsides to corporations. They are usually very difficult to get started in the first place, requiring large amounts of money. Also, they are subject to more taxation than partnerships.
Subchapter S corporation
A "subchapter S" corporation is one in which stockholders pay taxes as if they were partners. Income is distributed directly to shareholders, so the company does not pay corporate income tax. Other than that, a subchapter S corporation is just like any other. In order to be a subchapter S corporation, there must be fewer than 35 shareholders and only one type of stock (i.e. not "common" and "preferred").