Friday, May 24, 2024


Pros and Cons of Different Types of Business Systems

Business is the act of earning money or creating and selling goods by either manufacturing or simply purchasing and making them. Simply put, it’s “any transaction or act in which one person uses his assets or gains and expects or intends to return a profit.” The most common type of business is a business that produces something and then sells or delivers it to someone else. Common examples include retail stores, restaurants, online retail sites, manufacturers, etc.

Businesses may also be composed of individuals, partnerships, corporations, government agencies, and other organizations. Any business, no matter what its form, requires profits in order to survive and thrive. Most businesses earn their profits through some type of sales or production process. Some businesses may generate all of their revenue from one simple sale or transaction such as receiving goods at a factory, processing merchandise, selling items to customers at a wholesaler, or delivering goods to another retail establishment. Other businesses may utilize a more complex process to earn profits. They could process orders at a warehouse or distribution center, manufacture or deliver goods, maintain records for customer transactions, process payments, and operate a computer system to keep track of records.

Every legal structure of business is unique only in regard to that particular business. One business can have many different types of partnerships. For instance, a partnership is a legal structure where one business owns the other business. In this case, both businesses are considered separate and distinct but both share a common ownership and liability for debts of the partnership. A general partnership also shares equal liability and asset with the partners; however, the partnership is not responsible for the debts or assets of the partnership.

Limited partnerships are another form of business structure. A limited partnership is a two-party agreement that divides the partnership’s assets and liabilities equally between the partners. Limited partnerships are different from general partnerships, because they require more active participation by the partners. If one partner is not involved or is a non-recourse borrower, the assets of the partnership will be partitioned according to a profit and loss schedule established by the shareholders. The partnership will still own a part of the business.

Forming a Corporation is a different way to form a partnership or limited partnership. A corporation is an entity that files its own taxes and receives dividends. A corporation is completely separate from its partners and shareholders and therefore only shares its profits with its shareholders. As a result, the corporation is completely immune from personal income tax unless it makes enough profits to pay personal income tax.

Forming a corporation requires upfront fees and is relatively easy to do. The disadvantage of a corporation is that the company is subjected to double taxation. First, when you purchase shares of a corporation, you are taxed on the purchase price of those shares. Secondly, when you incorporate your business, you are subjected to corporate taxes.

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