R.ARTICLE 0.1 — Businesses today can be classified as being one of a handful of different kinds of business entities. The general classifications are as follows: a sole proprietorship, a partnership (under which it can fall into one of three categories - general, limited, and limited liability partnership), a corporation, or a cooperative. These, however, are only the general types of business entities, as different countries also have their own different types of business entities. For instance, in Chile there are four types of business entities, in Indonesia there are ten, while in Luxembourg there are only two. For those looking to start their own business, classifying their company as an entity can be a harrowing task in itself, which is why a business plan consultant is vital.
Being that there are so many different types of business entities out there, a small business consultant is necessary whenever a business owner wants to set up a company. Here is a look at two main types of business entities.
Corporation
There are many businesses in the world today that can be classified as being a corporation. According to the Reference website, a corporation is "a legal entity that is created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from its owner." As per R. C. Clarke's book entitled "Corporate Law" and Henry Hansmann's book "The Anatomy of Corporate Law," a corporation has four distinct core characteristics:
- Legal personality
- Limited liability
- Transferable shares
- Centralized management under a broad structure
A significant characteristic of modern corporations is the limited liability enjoyed by its owners, shareholders, and employees. If the company should fail, either through a lack of small business consultant or another reason, they are not directly liable for the losses or debts the corporation incurs: investors only stand to lose their investment while employees will lose their jobs, the debt will not be carried over.
Limited liability company
A limited liability company is a relatively new addition to the types of business entities covered by a business plan consultant. According to LLC Reporter, the limited liability company got its start in Germany in 1892 when the government passed a law authorizing the creation of Gesellschaft mit beschrnkter Haftung (GmbH), a forerunner of modern-day limited liability companies.
A modern limited liability company is a very flexible type of business entity sharing the characteristics of a corporation, a partnership, and a sole proprietorship. The characteristic it shares with a corporation is that it has limited liability, while the characteristic it shares with a partnership is that it can have "pass through income taxation." This is where an entity's income flows through to its investors and owners.
A limited liability company, due to its flexible nature, can choose to be taxed as a sole proprietorship, a partnership, an S corporation, or a C corporation.
Any business owner keen on starting up his or her own company would do well to talk to a business plan consultant first, as these professionals know the ins and outs of business entities, whatever type they may be.