The types of business - Essay Example

15 November The Types of Business Introduction Businesses are the backbone ofthe economic strength of a country. They play a fundamental role in a country’s economic growth and consequently, advancement in all other areas as well. Businesses are either online or brick-and-mortar or both. A business can be classified into different types depending upon the ownership and financing of business e.g. sole proprietorship, partnership, corporation and miscellaneous businesses. Sole Proprietorship: Sole proprietorship means running a business as an individual.

“A sole proprietorship is an unincorporated business owned by one person (hence, the term sole). The owner of a sole proprietorship is known as a sole proprietor” (“Doing Business”). Sole proprietorship accounts for 74 per cent of all businesses in the USA and their sales make up to 6 per cent of the total (“Chapter 9 – Types of Business”). There has to be no sharing of the ownership, though the number of employees can be very large as per the wish of the owner. There is no difference between the business and the owner as per the law.

The individual may establish the business with a trade name or in his/her own name, but he/she can not use a corporation to run the business anyway, or it would be no more a sole proprietorship. Sole proprietorship has many advantages and disadvantages, all of which fundamentally stem from the fact that the owner and the business are one and the same entity in the eyes of the law. The first advantage of the sole proprietorship is that there is no application of double tax. The second advantage of the sole proprietorship is that it enables the individual to have a reduction in the amount of losses which in turn reduces the total burden of the income tax upon the family, particularly when the sole proprietor is married and has filed a joint tax return (“Doing Business”).

Establishing a sole proprietorship is cost effective and easy (Ward). The disadvantages of sole proprietorship include application of complete liability, increased income tax application, and no deduction of tax upon health or life insurance. Personal liability can be reduced by certain ways. The sole proprietor can share the house with the spouse as tenants by the entirety or make the client sign a paper in which the sole proprietor takes no personal responsibility for the unforeseen risks. Partnership: Partnership is a kind of business in which ownership is shared by two or more than two individuals.

Partnerships account for 8 per cent of all businesses in the USA and 4 per cent of the total sales are made from the partnership businesses in the USA (“Chapter 9 – Types of Business”). The biggest advantage of the partnership business is the fact that it is the easiest to start. Most people with some money and no prior experience look forward to building partnerships with others in an attempt to benefit from their experience and expertise. In order for the partners to conduct the business in peace, it is imperative that all rules have been established at the outset.

Raising capital is easier and regulations are limited in the partnership business. However, life of the partnership business is limited. There are occasional disagreements and the profits are distributed among the owners as per their share in the business. Like the sole proprietorship, partnership businesses also escape application of double tax. “Under the Internal Revenue Code, all of the earnings of the partnership are allocated and taxed directly to the individual partners” (“Forms of Business”).

Corporation: Corporation is a business that investors own but officers run. 18 per cent of all businesses in the USA are corporations and they make 90 per cent of the total volume of sales in the USA (“Chapter 9 – Types of Business”). Raising capital is easier and the liability of the corporation is limited. Risks are shared and life of the business is unlimited. Thus, a corporation offers solutions to almost all problems of the partnership business. However, a corporation is difficult to commence.

The activity is limited and so is the direct control. Unlike the sole proprietorship and the partnership business, double taxation applies in the corporation. Miscellaneous Types of Business Some miscellaneous types of businesses include multi-nation corporations, non-profit organizations, and franchises. Multi-nation corporations conduct businesses in two or more countries. Non-profit organizations work for social well-being and only recover the cost of operation. Hence, they are more of services than businesses.

Franchises are businesses bought by individuals who give a due percentage of the profit to the corporation.   Works Cited: “Chapter 9 – Types of Business Ownership.” n.d. Web. 16 Nov. 2011. . “Doing Business as a Sole Proprietor.” Poznak Law Firm Ltd. n.d. Web. 16 Nov. 2011. . “Forms of Business Ownership.” n.d. Web. 16 Nov. 2011. . Ward, Susan. “Choosing a Form of Business Ownership.” 2011. Web. 16 Nov. 2011. .