Types of businesses
1. Sole proprietor
Typical sole traders include the man-in-a-van type of occupation such as a plumber or electrician. However, the term can also apply to people who run small, web-based businesses from home.
This is the simplest and the most common type of business out there. The sole proprietor is responsible for everything the business does. You trade under your own name, with no separation of assets and liabilities. This means that you'll be held personally liable for any debts that the business incurs.
2. Partnership
Partnerships are typically found in professional services such as accountants, lawyers, doctors, dentists etc. where the partners can share expertise and skills. They can also share the workload. Partnerships comprise two or more people and any profits, debts and decisions related to the business are shared.
3. Company
Companies are owned by shareholders who each put an amount of money into a central pool. This pool of capital is then added to by borrowing and other forms of finance. Directors run the company on behalf of shareholders, who receive a share of the profits. Each shareholder receives a portion - or share - of the company that is equivalent to what they put in. A company is seen as a legal entity that is entirely separate from the shareholders.
4. Franchise
Franchises are licensing arrangements whereby an individual or group can buy the right to trade and produce under a well-known brand name in a given locality. A franchise involves you using another company's successful business model - and name - to establish your own business. The franchisee benefits from working for themselves while having the privilege and reputation associated with a much larger group.
5. Limited liability
Limited liabilities are intended to benefit professional partnerships such as lawyers, doctors etc. They offer a form of business protection for company shareholders and some limited partners. For these individuals, the maximum sum they can lose from a business venture that goes under, is the sum of money that they invested in the company.
Limited liability allows the members to limit their personal liability if something goes wrong with the business.
