Different Types of Business Entities
There are several different types that it can often be confusing to the law man to differentiate one type of business entity from another. This is a simple guide to help you have a good understanding of business entities.
“C” Corporation: This type of business is one which is owned by anybody who owns the shares of the company. As far as all tax and legal matters are concerned the shareholders of the company are always deemed to be separate from the company. Also, in the case of C Corporation, the company’s shares can go public, in which case, it would be traded on the stock exchange market. A good example of a public C corporation is Microsoft.
Foreign Corporation: any entity that does business beyond its country of formation or origin. Microsoft for example was formed in Washington. Immediately it started engaging in business activities in New York, it became a “foreign corporation.”
General Partnership: This is an entity formed by a group of two or more individuals referred to as partners. Because of the nature of this business structure, any partners to the business are personally liable for any and all debts which are incurred in the running of the business, without consideration of the amount contributed. In another vein, there’s no protection against legal lawsuits in a general partnership.
Holding Company: This is an entity that’s normally counted as being part and parcel of the double strategy of incorporation. Holding companies have their single and most important objective as: to own other entities or have control over them as part of their overall strategic objective. One sad reality of the business of holding companies is that these subsidiary companies are often faced with threats of buy outs or being outcompeted. So one common practice, especially in the insurance industry, is the use of holding companies to siphon profits as quickly as possible and limit their exposure in the event of a lawsuit, or even for tax purposes.
Joint Venture: This is a corporative entity formed by two or more individuals. It’s known to be a business that’s limited to single purposes for focus area. For example, a networking engineer and a web developer might come together to form a joint venture in hopes of offering web and networking solutions to e-commerce platforms or companies.
An “LLC”, also called a Limited Liability Company: This for the most part is the same as a corporation, in that it enjoys the same liability protection that is granted to a corporation. On the flip side it is granted many of the same benefits that a partnership enjoys.
Estoppel Partnership: this is normally an entity formed by two individuals who come together to pursue a business idea and publicly hold themselves accountable for that. It’s a common business entity because it involves two people coming together for business purposes and might not take the business deal as formally designated. This business entity type exposes all partners involved to great risks.
The “S” Corporation: it’s almost the same as the “C” corporation, and offers shareholders of companies a protection to their debts and properties. Its distinctive feature is that it can only accommodate 75 shareholding members, and it attracts tax as well.
A Sole Proprietorship: this is one man business; formed and managed by a single individual. There’s equally no protection when it comes to liabilities from the business. Taxes are deducted from the sole proprietor’s personal tax returns for a particular period of time.
All the listed types of entities surely give business owners some advantages in making their decisions. If you are about to start a business, you should by now know what type of entity is good for you.