Types of Business Organization

Different types of business entities offer their own distinct benefits and negatives. Generally speaking, it is to the owner's benefit to hire a lawyer to handle the incorporating duties, if needed. The cost is not usually that huge, and lawyers come equipped with red-tape cutting brains (at least the good ones do).

By choosing the best type of business entity from the beginning, people can avoid later problems and costs that are not necessary. Here are the types of business organization to be considered:

General Corporation: Known as a "C" corporation, it may have an unlimited number of stockholders. It usually involves more than 30 stockholders or large public stock offerings, and each stockholder's personal liability is more often limited to their investment.

Close Corporation: Probably the best choice for a lone individual starting a company or one started by a small group of people. The number of stockholders is limited to 30, and directors wishing to sell stock must first offer it to other stockholders.

S Corporation: For those who wish to be taxed as if they were still sole proprietors or partners. It pays federal income tax on its profits, offers limited liability for the individual. S Corporation income is reported only on the stockholders' personal income tax. There can be no more than 75 stockholders.

Sole Proprietorship: One person owns and runs the company and is responsible for all liability, profit, or loss.

Partnership: Two people go together to form a business, and together are responsible for all liability, profit, or loss. Types of partnerships include general, limited (where only one of the two is liable for the partnership beyond making a contribution, and joint venture (in place for a pre-determined amount of time).

There are a number of things to consider when starting a business. For those who engage in a small business, such as a sole proprietorship, a partnership, or a small S Corporation, they must consider all things good and bad that can happen and then make plans to deal with those things.

The bottom line is that a business is a business and cannot be operated like a hobby. That doesn't mean you can't enjoy it, but it does mean you have to pay attention to the same details that every business must in order to make it profitable. And, believe me, there is no greater enjoyment in business than profit.