Types of Business Entities

Types of Business Entities

The types of business entities simply refers to the forms of incorporations for a business. For example, sole proprietorship, Limited liability companies and corporations are the most common types of legal entities. In this article I will list and give you details for the most common types of business entities.

Types of Business Entities
The types of business entities simply refers to the forms of incorporations for a business.

List of the types of business entities in the US

Forms of business ownership vary by jurisdiction, but these are several common entities that exist.

Sole proprietorship

A sole proprietorship, also referred to as a sole trader. It is a business entity owned by one person and operates for his or her benefit. The owner operates the business alone and will hire employees. A sole proprietor has unlimited liability for all obligations incurred by the business; whether from operating costs or judgments against the business. All assets of the business belong to a sole proprietor, including, for instance, a computer infrastructure, any inventory, manufacturing equipment, or retail fixtures– similarly as any holding owned by the only real proprietor.


A partnership may be a business owned by two or more people. In most varieties of partnerships, each partner has unlimited liability for the debts incurred by the business. The three most prevalent styles of for-profit partnerships are general partnerships, limited partnerships, and financial obligation partnerships.


The owners of a company have financial obligation and therefore the business encompasses a separate legal personality from its owners. Corporations will be either government-owned or privately owned, and that they can organize either for profit or as nonprofit organizations. A privately owned, for-profit corporation is owned by its shareholders, who elect a board of directors to direct the corporation and hire its managerial staff. A privately owned, for-profit corporation will be either privately held by a tiny low group of people, or publicly held, with publicly traded shares listed on a exchange.


Often cited as a “co-op”, a cooperative could be a limited-liability business which will organize as for-profit or not-for-profit. A cooperative differs from a company in this it’s members, not shareholders, and that they share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

Limited liability companies (LLC)


Limited liability companies (LLC), financial obligation partnerships, and other specific kinds of business organization protect their owners or shareholders from business failure. They doing so, by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons acting on their own are usually not as protected.


A franchise could be a system during which entrepreneurs purchase the rights to open and run a business from a bigger corporation. Franchising within the u. s. is widespread and may be a major economic powerhouse. One out of twelve retail businesses within the us are franchised and eight million people are employed in an exceedingly franchised business.

A company limited by guarantee

Commonly used where companies are formed for non-commercial purposes, like clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the corporate goes into insolvent liquidation. But otherwise, they need no economic rights in relevancy the corporate. This sort of company is common in England. a corporation limited by guarantee could also be with or without having share capital.

A company limited by shares

the foremost common kind of the corporate used for business ventures. Specifically, a Ld. could be a “company within which the liability of every shareholder is restricted to the quantity individually invested” with corporations being “the commonest example of a Ld..” this sort of company is common in England and plenty of English-speaking countries. a corporation limited by shares could also be a

  • publicly traded company or a
  • privately held company

A company limited by guarantee with a share capital

A hybrid entity usually used where the corporate is made for non-commercial purposes, but the activities of the corporate are partly funded by investors who expect a return. this sort of company may not be formed within the UK, although provisions still exist in law for them to exist.

A liability company

“A company—statutorily authorized in certain states—that is characterized by liability, management by members or managers, and limitations on ownership transfer”, i.e., L.L.C. LLC structure has been called “hybrid” in this it “combines the characteristics of an organization and of a partnership or sole proprietorship”. sort of a corporation, it’s liability for members of the corporate, and sort of a partnership, it’s “flow-through taxation to the members” and must be “dissolved upon the death or bankruptcy of a member”.

An unlimited company with or without a share capital

A hybrid entity, a corporation where the liability of members or shareholders for the debts (if any) of the corporate aren’t limited. during this case, the doctrine of a veil of incorporation doesn’t apply.

Less common types of entities business

Less common types of  business entities

Companies formed by patent

Most corporations by letters patent are corporations sole and not companies because the term are commonly understood today.

Charter corporations

Before the passing of recent companies’ legislation, these were the sole forms of companies. Now they’re relatively rare, apart from very old companies that also survive (of which there are still many, particularly many British banks), or modern societies that fulfill a quasi-regulatory function (for example, the Bank of England could be a corporation formed by a contemporary charter).

Statutory companies: Relatively rare today, certain companies are formed by a non-public statute passed within the relevant jurisdiction.

Note: that “Ltd after the company’s name signifies company, and PLC (public limited company). This  indicates that its shares are widely held.”

In legal parlance, the owners of a corporation are normally stated as “members”. in an exceedingly company limited or unlimited by shares (formed or incorporated with a share capital), this may be the shareholders. during a company limited by guarantee, this can be the guarantors. Some offshore jurisdictions have created special types of offshore company in an exceedingly bid to draw in business for his or her jurisdictions. Examples include “segregated portfolio companies” and restricted purpose companies.

There are, however, many, many sub-categories of varieties of company that may be formed in various jurisdictions within the world.

Companies are sometimes distinguished into public companies and personal companies for legal and regulatory purposes. Public companies are companies whose shares are publicly traded. They are trading on a securities market which imposes listing requirements/Listing Rules on the issued shares. The trading of shares and a future issue of shares to assist bolster the reputation of the exchange or particular market of exchange. Private companies don’t have publicly traded shares, and sometimes contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.

A parent company may be a company that owns enough stock in another firm to regulate management and operations. These companies  influence or electing its board of directors. The second company being deemed as a subsidiary of the parent company. The definition of a parent company differs by jurisdiction, with the definition normally being defined by way of laws handling companies in this jurisdiction.

Types of Business Entities was first published at businessfixes.com. I hope this articles can help you to decide which types of business entity is right for you. Please comment below and comeback for more.

Ralph Fixes

Just another guy obsessed with self-improvement, life, and business.

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