There are a few different business entities that you should consider when deciding to create your own company. It is important to not only understand how the business is comprised but also what that means for the business itself. There are a few benefits and drawbacks to each type of business.
A sole proprietorship is comprised of one owner who manages the whole company. This can be a benefit in that all decisions can be made swiftly and implemented quickly when coming from one individual. On the other hand, should that individual be away from the company, business could suffer. If no one is appointed with authority of business operations the business will have no management. If an individual is given authority, he or she can manage the company but will not have the same vested interest as the owner.
Limited Liability Company
A limited liability company, also known as an LLC, is a company that is owned by one or more individuals. The business may be run by the owners or they may appoint a manager or team of managers to run the daily operations. In this setting, the owners and managers have a direct relationship and do not have to deal with a middle man. Also, the owners have a strong say in the operation of the business as well as the structure of the management team. However, should the owners disagree on certain business decisions, which is bound to happen at some point, decisions could be prolonged or there could be a deadlock.
A corporation is a company that is owned by shareholders but is managed by directors and officers. An elected Board of Directors makes managerial decisions for the company and the officers execute those decisions and handle day-to-day operations. Shareholders are paid dividends from the business whether they work or not. However, in order for shareholders to have an impact on the direction of the company they must be directors or officers as well. Otherwise, they will have a hard time effecting the course that the business takes.
As the name suggests, a general partnership is a company that is owned by a group of partners. Each partner has an equal right to the company, unless the partnership agreement states differently. This can be helpful when several different professionals bring their knowledge and expertise to a company and leverage their best assets to help the company thrive. However, there is also some risk involved seeing that each partner has the authority to enact management decisions. Therefore, all partners are bound by the contracts that any partner makes and are held liable for those contracts. Also, disagreements in decisions can lead to deadlocked decisions.
A limited partnership is comprised of general and limited partners. One or more general partners manage the daily operation of the company. Though the general partners do make common management decisions, all management decisions are subject to approval by the limited partners of the business. With a strong general partner properly operating the management aspects of a business it can fully flourish. However, some limited partners may not feel heard and may find it difficult to do so with a limited status. If desired, a limited partner may participate in the management aspect of the business, but doing so would expose the partner to personal liability for the decisions of the partnership. There are benefits and drawbacks to each type of business. Depending upon your plans for the company you desire to create, a certain entity may be best for you. Take some time to fully investigate the business types you are interested in to make the best decision for your business needs. It may also be helpful to consult with a business professional.
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