The world of business is divided in to several subsections called entities. These can be thought of as different structures for how exactly a particular business is going to be operated. Here is a list of some of the most common types of business entities.
A sole proprietorship is simply a term that exists as soon as you begin engaging in business by yourself. If you are not listed on anybody’s payroll then you are classed as a sole proprietor. Small-scale examples can include owning a fruit and vegetable stall, starting your own car valeting service or becoming a home-visiting physiotherapist.
If you decide to work with someone else, then a general partnership has been formed. This can be agreed either formally or through handshake agreement. There are both advantages and disadvantages to this type of entity, with partners being able to share the load but there also being the potential for professional disagreement.
Limited Liability Company
A limited liability company is a company comprised a several partners, but the special element of this type of entity is that it is a private company in which the different owners can only be held responsible for debts amounting to the same amount of capital that they have each invested in the business. This means that unless something very illegal is undertaken, partners can rest assured that they have a safety net.
A corporation is one step up from a limited liability company, and is different in the sense that is can be seen as a completely unique entity. In simple terms, this means that the business is almost like creating an entirely new person, and because of this they are subject to an entirely different tax structure. Corporations pay separate tax rates that are very different to smaller, personal tax level, and this gets calculated based on the annual profits rather than the gross income. A corporation is generally owned by its shareholders, which might be individuals or other business entities or even financial institutions.