Types of Business Entity. A business entity is an organization that sells a product or service, usually for making a profit. Different countries have different types of business entities. Most countries have similar types of business entities.
There are three main types of profit-making business entities.
Sole traders are people who work for themselves. Examples include a local shopkeeper, plumber or hairdresser. The term sole trader refers to the ownership of the business; sole traders can have employees.
The sole trader receives all profits and has unlimited responsibility for all losses and debts. Each asset of the business is owned by the proprietor and all debts of the business are the proprietors. It is a sole proprietorship in contrast with partnerships that have at least two owners.
Partnerships occur when two or more people decide to share the risks and rewards of business together. Examples Include accountancy, medical or legal practice.
A partnership is an arrangement where two or more parties, known as business partners, and they agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or maybe only governed by a contract.
Limited Liability Companies
Limited Liability Companies are registered to take advantage of ‘limited liability’ for their members like shareholders. A limited liability company (LLC) is a hybrid legal entity having certain characteristics of both a corporation and a partnership or sole proprietorship. An LLC is a type of unincorporated association distinct from a corporation.
The primary characteristic an LLC shares with a corporation is limited liability and the primary characteristic it shares with a partnership is the availability of pass-through income taxation. As a business entity, an LLC is often more flexible than a corporation and may be well-suited for companies with a single owner.
Types of Business Entity.