How to Choose Between a Sole Proprietorship and a Limited Company
Business means different things to different people. For many people, a business is simply a corporation, partnership, limited liability company, or other entity that enables them to engage in commercial activities. Businesses can also be for-profit or non-profitable organizations that function to meet a social cause or further a personal charitable purpose. Business can also represent a person, idea, or concept. Therefore, a business can have different characteristics depending on who the business entity is for.
In most cases, businesses are one or several of the following: sole proprietorship, partnership, corporation, LLC, and proprietorship. Soliciting or creating a new business does not change these characterizations. In most cases, the name of the business serves as the beginning or name of the principal and the name of the entity serves as the ending or identifying tag. The distinguishing features of different types of businesses are discussed below.
Sole proprietorship is a form of business ownership where there is no additional partner. Examples include partnerships such as one man/woman or one business unit. Examples of sole proprietor businesses include partnerships that are formed between individuals or small groups. A partnership is considered a valid form of business when at least one partner has contributed to the partnership.
Corporation is another common example of a business. It is created by signing a formal written contract. Partnerships are another example. A partnership is a type of business with two or more partners. In most states, it is necessary for a partnership to have legal rights. Partnerships create limited liability for the partners.
LLC (limited liability company) is another example of a business. An LLC is formed in the same way as a corporation. All the shareholders will be considered as one entity. It is treated just like a corporation, except that one cannot have control over the other shareholders. An LLC has only one shareholder, whereas a corporation has many shareholders.
Limited liability companies are similar to sole proprietorships, but the LLC has added the word “limited” in front of “personality”. Limited liability companies are formed for specific purposes, usually investment. A shareholder will have control over his own investments, unlike in a corporation. There are some advantages for investing in a limited liability company; this type of business can be run from an address just like a sole proprietorship.
As with any other type of partnership, an LLC may be operated by a single person or by many partners. Businesses registered as a sole proprietorship and corporations sole cannot both operate at the same time. This could lead to severe financial losses for the investors. However, an LLC can operate even if only one shareholder is allowed. Operating as a partnership does not require any restrictions on the number of partners and it also allows an investor to add partners anytime he wants.
In order to protect the business and limit liability, LLCs have different procedures and rules for incorporating. For example, a partnership must file its Articles of Organization along with the US corporation forms. The Articles of Organization must provide all of the necessary information about the partnership such as the names of all of its registered members. On the other hand, a limited liability partnership must file its articles of association separately from its registered corporation. This is done because the limited liability partnership’s assets, funds, and liability are all limited in nature and can be protected under the laws governing limited liability partnerships.
Limited liability partnerships offer the advantages of a sole proprietorship without all of the disadvantages that come with being a sole proprietorship. As with a sole proprietorship, there is the double taxation issue. First, the business has to pay taxes on its income and gain from the investment it makes. Second, if something happens that harms the business or anything in which it does not gain profit, then the shareholders will be liable to the tax payers. With an LLC, the shareholders will only be liable for their individual shares, which means that they won’t be responsible for the actions of the LLC, or anything held by the LLC.
Limited liability partnerships also differ from sole proprietor businesses in that they can incorporate as a corporation. There are some risks with this, however. Namely, when incorporating an LLC, the parties involved must have enough knowledge, experience, and motivation to operate the business successfully. A sole proprietor has more control and is able to hire employees, buy office space, and do many things to grow and prosper. On the other hand, the limited liability of an LLC gives way for potential problems and dangers.
For most small business needs, a sole proprietorship or a limited company is probably going to be the best option. With so many options out there, you should consider what your unique situation is before choosing the company that’s right for you. This will ensure that you get the correct type of business structure for your needs. For example, you shouldn’t incorporate as a sole proprietorship if you don’t have very much experience or even any experience at all with running a business. A partnership might be best if you have lots of expertise in a particular field, but you may want to think about starting a business that is not quite a partnership, such as an LLC.