What Are the 4 Major Business Organization Forms?

Igor Roitburg is from New York which is based in the USA. Igor Is a Chief Operating Officer at Default Mitigation Management LLC. He has a lot of experience in this field.

A business organization is a single-most-important choice you’ll make regarding your company. What form your business adopts will affect a multitude of factors, many of which will decide your company’s future. Aligning your goals to your business organization type is an important step, so understanding the pros and cons of each type is crucial.

There are four major types of business organization: sole proprietorship, partnership, corporation, and limited liability companies, or LLCs. Below, we provide an explanation of each and how they are used within the scope of business law.

Sole Proprietorship

The simplest form and the most common form of business ownership, a sole proprietorship is a business owned and run by someone for their own benefit. Business existence depends entirely on the decision of the owners, so that when the owner dies, so does the business.

Partnership

These come in two types: general and limited. In a general partnership, both owners invest their money, property, labor, etc. for business and both are 100% responsible for the debts of the business. In other words, even if you invest a little into a general partnership, you are still potentially liable for all debts. a general partnership requires no formal partnership agreement can be oral or even implied between the two business owners.

A limited partnership requires a formal agreement between the partners. They also must submit a certificate of partnership with the state. a limited partnership allows partners to limit their liability for business debts in proportion to their ownership or investment.

Corporation

Corporations are, for tax purposes, separate entities and are considered a legal person. This means, among other things, that the profits generated by a corporation are taxed as the “personal income” of the company. Then, any income distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners.

Limited Liability Company (LLC)

Similar to a limited partnership, an LLC provides owners with limited liability while providing some of the income advantages of a partnership. Essentially, the advantages of partnerships and corporations are combined in an LLC, mitigating some of the disadvantages of each.