Starting a business of yours or beginning your hustling journey is quite an exciting way to live life these days. Most people tend to avoid their typical 9 to 5 jobs and want to run their own businesses. A lot of times, people tend to confuse all the terms associated with business and industry.
There are questions like how many types of business & what are different types of businessess. So, in this article, we’ll explain all the types of businesses and their legal forms of incorporation with examples.
Types of Businesses
A commercial way of business (types of business) that is done in an expert manner by an individual or team working for the customer’s requirement. This is a direct relationship between the customer and the service provider.
They develop their product as per the customer’s requirements. The requirement may be vast, and the numbers also will be vast, where they provide a single service for everyone. These provide products such as banking, education, insurance, and treatment.
These types of business focus on buying products at wholesale prices and selling them at retail prices. This is also a “buy and sell” platform of business. They make high profits by selling the product greater than they actually purchased it.
They do not alter the product form and sell it as it was, they are coined as resellers. They produce or make a product they buy and sell the product. They are the third-party dealers of a specific product.
For example, they are marketers for a specific product.
There is a thin line difference between the merchandised types of business and the manufacturing business, where they change the form of the product purchased. This uses raw materials, parts, and components to assemble.
They use machines, robots, humans, and raw materials, which make an assembly line, where all this is put together at a final price with all the combinations. They sell their products to manufacturers, distributors, or directly to customers.
They are classified into 3 types of businesses:
- Make to Stock: The final product made in a huge amount for the customer’s use in the future.
- Make to Order: This gives priority to the customers to order their product directly.
- Make to Assemble: This type works on the demand of the customers and assembles the products when the requirement is given.
Forms of Business Organizations
This classifies the way business is led through all the ups and downs going through by a single owner or multiple owners or a corporate. Eventually, while starting a business, a few key points are to be kept intact, like ownership and profits and loss. On the basis of these, they are classified into a few basic types (forms of business).
As the name tells us that it refers to a single person owning a business. It is owned and run by a single person without any shareholders or investors. The total profit is only for the owner.
Moreover, a sole trader needs not to work alone it is possible for him to hire a few employees for the required work. The owner can use a trademark, and they have to trademark their business name if there is a name change from the legal name.
This type of business ownership has a few advantages and disadvantages.
- This involves a single person’s decision.
- The profit or loss in the business is solemnly taken by the owner and not the employees.
- The profits are taxed only once.
- At times at a huge loss, the owner may need to sell his assets also to repay the debt made and does not include any other individual.
- And it is the easiest and the least expensive way of ownership.
In a partnership, the ownership of a business has been taken by two or more individuals for a single business. There is always a legal agreement between the partners of the business, where each holds specific ownership of the business.
In types of business, the profit of the business has been shared between the owners as per the agreement. In the same way, the loss of the company is also considered as the same share, which has to be put in by the owners. This avoids disruption between the partners in the future.
Few advantages and disadvantages
- It is easy to establish a partnership unless there is a legal agreement.
- Profits have been taxed only once, and the partners may also have complementary skills also.
- Decision-making is not done by a single, and it involves partners also.
A corporation is an organization, which includes a group of people or a company that is authorized by the state. Nowadays, most jurisdictions allow the creation of new corporations by registrations. The corporation is based on two aspects- To make profits or To issue it as a stock or share. This can be divided into a number of owners, a corporation sole, and a corporation aggregate.
A corporation that is allowed to issue stock is called a stock corporation, which is referred to as stockholders or shareholders.
A few advantages and disadvantages are
- It is limited liability.
- There are tax benefits.
- These types of businesses can be costly to be formed.
- There is no need to sell the assets in case of debts
- Capital can be raised through shares.
- Ownership transfer is easier.
Limited Liability Company
A limited liability company or an LLC is a types of business that is a combination of both a sole proprietorship and a corporation. This has a limited number of owners owning the company under a specific legal agreement. An LLC is not considered a separate entity, and the company needs not have to pay any taxes or does manage the loss. But the loss is taken by the separate owners who hold the profit or loss on their IT returns.
A few advantages and disadvantages are
- The members of LLC have protection against liability.
- The company’s loss, debts, and business credit are not taken care of by the LLC members.
- LLCs can have multiple members and each member has the flexibility in structuring the management of the company. You can even select varying types of distribution of profits if you are forming an LLC in Florida.
- LLCs don’t have a formal legal meeting with the company.
- LLCs are limited and dissolved when the company collapses.
Business is a way of making money by producing or buying the need of products required by the purchaser. This is simply a way of making a profit by using several means.