The Different Types of Businesses Explained

Different types of businesses

Starting a business can be scary at first. But the undertaking comes with numerous rewards, including becoming your own boss.

Nonetheless, you must invest your time planning and learning everything about business before rushing to start one. Among the critical business tips and things to understand are the different types of businesses. With this knowledge, you will be in a better place to choose the best businesses and the requirements for each.

Keep reading to learn more!

Selecting the Best Business Type

The top tip for starting and growing a business is choosing one in line with your dreams. A lot comes into play when determining the best company to start. Some critical aspects to consider include:

  • Your budget
  • How you intend to share liability
  • Tax requirements
  • Ease of operation
  • Ease of expansion
  • Right to sell the business

With these factors, you will choose a business structure that is beneficial to your personal needs and the organization’s health.

Understanding the Different Types of Businesses

Now let’s take a closer look at the different types of businesses. You can also click here for insights into how to grow a business.

Sole Proprietorship

Most small businesses start as a sole proprietorship. This business setup is started and run by one person known as a sole proprietor. The individual is responsible for all day-to-day business errands.

You can start a sole proprietor with your name and get started without filling any papers. Therefore, if you are looking to start a company soon without going through the lengthy evaluations from different bodies, this is the best shot for you.

A sole proprietorship is suitable for individuals on a tight budget. The best part is that both income and expenses are added to the personal income tax.

The downside, however, is that losses suffered in sole proprietorship can adversely affect income earned through other means. You are also fully liable for any business and personal liability. You have no one to share losses with, so you will feel the strong blow if things do not go as expected.

Limited Liability Partnership

Abbreviated as LLP, this is a business setup where individuals come together to start a company to limit liability. The other benefit of this business type is that owners get a taxation pass-through as taxation is included in their personal income.

The simplicity of a limited liability partnership is the other thing to love about the setup. You only need registration with the state secretary to get started. The business owners participate in the company errands actively and have complete control over how it is run.

The main downside of limited liability partnerships is complexity and unavailability in some states. If you wish to start this type of business, you must be willing to conduct thorough research on the state requirements, availability, and tax laws.


As the name suggests, a partnership is a type of business where two or more individuals come together to start and oversee business operations. The partners share the profits, losses, and liabilities.

Just like sole proprietors, the partners enjoy a tax pass. Their income is only taxed once. Partnerships are classified as general, limited, and limited liability partnerships.

General partnerships are open with no formal agreements. Communication can be made verbally, thus they’re easy to start.

Limited partnerships, on the other hand, entail legal agreements between the involved parties. They must also file a partnership certificate with the state secretary.

Limited Liability Company

Limited liability companies are a blend between corporations and partnerships. Unlike in other forms of partnerships, where members are referred to as partners, LLC members are known as shareholders.

Regardless of how vast the partnership is or how many members the company has, there has to be a managing member. The personnel is liable for undertaking major, daily operations.

LLC members are not held liable for all business actions, and only the member in question is held accountable for their actions.

Series Limited Liability Company

The series LLC is an upcoming type of business, which is only available in limited states. In this setup, the parent LLC forms subsidiary forms of internal LLCs. The subsidiaries are developed to separate liabilities in different business units.

Starting this type of business is a bit complex and demanding. It is highly advisable that you conduct in-depth research and consult with an advisor before taking this route.

Besides limited liability, starting this business type allows you to participate in your company’s operations actively. You also enjoy more tax flexibility, and you are only required to file taxes once.

Nonetheless, starting this business type comes with extra administrative costs, and it gets higher when forming a series of LLCs.


A corporation is an independent company. The business is made of a range of shareholders who deal with stocks.

The taxes generated by the company are taxed as the business personal income. The income earned is shared among the shareholders as dividends. After distribution, the members are taxed again in their personal income.

The main benefit of corporations is limited liability of losses and debts. The losses and debts belong to the company, therefore distributed among members. In the case of leadership changes, the corporation can be transferred to new members easily.

Corporations are legal entities, and the shareholders’ personal assets cannot be seized to cover debts. The downsides are that starting and establishing a corporation is expensive. The process is complex and requires paperwork, not to mention that the income undergoes taxation twice.

S Corporation

This type of corporation enjoys tax pass-through benefits. To qualify as an S corporation, the organization should have no more than 100 shareholders and only deal with one type of stock. Only specific trusts, individuals, and estates can own shares in this kind of business.

S corporations have easier access to funding, and owners enjoy limited liability to legal obligations and debts. The starting process is complex as owners must report their earnings to shareholders.

Choose a Business Type That Meets Your Needs

Now that you understand the requirements, pros, and cons of different types of businesses, you can easily choose your best. Do not forget to seek further clarifications from experts, keeping in mind that there is no going back once you select a business structure.

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Categorized as Business

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