Business Entities – Which One To Choose?

Business entities like businesses come in many shapes and sizes. Depending on what kind of business you have, you may be limited in your choice of entities for that business. A short and to the point definition of an entity for your business, is a business that is created to make money. This business can be owned by a single owner, or a several owners. Depending on where your business is located, you may have to meet some legal requirements for your business entity. Let’s review the different kinds of entities for you to choose from.

Sole Proprietorship

One type of business entity and the most common that you will find is the sole proprietorship. Which is a business that is operated and owned by only one person. The owner is the one that benefits from all profits made by the business, but also resumes all responsibility for it as well. If you are not looking to go into business with anyone else, and just for yourself, this may be the ideal entity for you and your business.

General Partnership

When you have more than owner for your business, the entity you may want to consider is called a general partnership. This type of company is owned by more than one person, which all share in the profits made by the company, as well as all of the responsibility that the company requires.

Corporation

A corporation is a business entity that has a board of directors. The board of directors make the major business decisions and vote on changes for the company. The money that is made from a corporation is split with the shareholders of the company.

Limited Liability Partnership

Another type of entity to consider for your home business is the limited liability partnership. This business is a lot like a corporation with the exception of the board of directors. The owners can either manage the business themselves, or offer that position to someone else.

Limited Partnership

A business entity that is called the limited partnership is owned by general partners which are active in the company, and limited partners which are more or less just investors. This type of company is ran by the general partners, and the limited partners are somewhat limited in the role that they can play in the company.

With all of the many business entities that you can choose from, you are sure to find the best one that suits the business that you want. Be sure to thoroughly research each one of the entities and make sure that you are following all of the laws in the state that you are doing business in.

What Types Of Business Entities Are There?

It’s rare for the average Joe to know what a Business Entity Search is without having it explained to them, but once they do, they usually retain it. The same concept that’s true in our relationships with the opposite sex and society at large applies to our dealings with other businesses: we all want to work with somebody we trust. A Business Entity Search helps you to find whether a certain company has potential for fraud or not, by checking their details in state and local databases. Further, it helps you locate whether the business has shut down or is still functioning.

Categorizing Entities

There are many forms and types of business entities, and the all fit in the following broad categories:

Sole proprietorship – This is a type of business entity where there is only one sole owner and there is no legal difference between the owner and the business. This is probably the simplest entity – the owner does all the work, he gets all the credit, he takes all the profits, he absorbs all the losses, and if there’s any legal liability – you guessed it, he’s all on his own. On the positive side, a sole proprietorship comes with the least amount of paperwork, and you can use your business expenses as a tax deduction. On the downside – If you get in debt and default, the creditor can dig into your personal assets for recovery.

Partnership – this is a legal entity which has more than one owner bound in a contract. The profits and losses are shared according to terms stated in that contract, but they have unlimited liability i.e. their personal assets can be targeted in case of default. This type of entity has the advantage of having larger capital than sole proprietorship, as more than one owner is involved. But it comes with disadvantages – partnerships can fail, and people can be unpredictable. I’ve seen more than one business partnership fall apart because a partner got too fond of billing things “to the business” and drove his partner to the poorhouse.

Private limited companies – this is the first type of legal business entity with limited liability, i.e. the personal assets of the owners cannot be used in case the business goes bankrupt. It requires fairly large amounts of capital, and the business ownership is divided among a group of private shareholders. The shares are generally sold within the company, and hence the decision-making (and the money) is not to be made public. These entities are treated as an individual separate from the people involved in the day-to-day operations.

Public Limited Companies – this is the largest type of business entity in terms of capital. The capital comes from public shareholding, as the Public limited company needs to be registered with a stock exchange. They have unlimited liability and usually the ownership is separate from management. They are required to show their financial statements, shareholder meetings, and performance publicly once a year at least, hence decision-making is not private. Failure to keep up those standards could get a corporation stripped of its personhood – an ugly experience for everyone involved.

Each business entity has its own rules and regulations. Why’s that important to a prospective searcher? Well, when an investor is ready to open her checkbook, she can check the viability of her investment according to the legal form of business. After all, all business entities, either having limited or unlimited liability, need to be registered with their state.

Once you’re know what kind of business entity you’re dealing with, it becomes a lot easier to get information from other databases.