What I wish everyone knows about forms of business

Tuesday, 5th March 2019


What I wish everyone knows about forms of business

The Free Dictionary defines ‘form’ as:

The shape and structure of an object

The body or outward appearance of a person or an animal, figure or anything.

The way in which a thing exists, acts, or manifests itself.

Now having known the types of business and you wish to know the forms in order to clearly choose the business that will suit you, this article is for you.

I have ensured that I put the minimum best explanation in order not to bulge you with too many jargons.

As a business owner one thing that will have great effect in your success is what form of business you choose to operate. This decision is very important because it can affect how much you pay in taxes, the amount of paperwork your business is required to do, the personal liability you face and your ability to borrow money. 

There are many forms of business but the most common among them are what we will be discussing here for sake of brevity.


  • Sole Proprietorships
  • Partnerships
  • Corporations
  • Limited Liability Companies (LLC)
  • Subchapter S Corporations (S Corporations)

Brief description of the different forms of business

1. Sole Proprietorship

A sole proprietorship is a business owned by only one person. It is easy to set-up and is the least costly among all forms of ownership.

This form of business is usually adopted by small business entities.

2. Partnership

A partnership is a business owned by two or more persons who contribute resources into the entity. The partners divide the profits of the business among themselves.

This form of business is suitable for large organiastions like manufacturing company and any other business organization that is into serving a large area of the community or country.


3. Corporation

A corporate form of business is more complex than other business structures. It requires complying with more regulations and tax requirements.

Corporations are formed under the laws of each state and are subject to corporate income tax at the federal and state level. In addition, any earnings distributed to shareholders in the form of dividends are taxed at the individual tax rates on their personal annual tax returns.

The corporation becomes an entity that handles the responsibilities of the business. Like a person, the corporation can be taxed and can be held legally liable for its actions.

4. Limited Liability Company

Limited liability companies (LLCs)  are hybrid forms of business that have characteristics of both a corporation and a partnership. An LLC is not incorporated; hence, it is not considered a corporation.


Nonetheless, the owners enjoy limited liability like in a corporation. An LLC may elect to be taxed as a sole proprietorship, a partnership, or a corporation.


5. Cooperative

A cooperative is a business organization owned by a group of individuals and is operated for their mutual benefit. The persons making up the group are called members. Cooperatives may be incorporated or unincorporated.


Some examples of cooperatives are: water and electricity (utility) cooperatives, cooperative banking, credit unions, and housing cooperatives.


If you are asking "What structure makes the most sense?"  Or “What is the main thing you should know about forms of business?”

It all depends on the individual circumstances of each business owner. One form is not necessarily better than any other. Each business owner must assess their own needs.

Also know that state law (The law governing the country) controls the formation of your business, federal tax law controls how your business is taxed. The form you use depends on how your business is organized.

Please choose a form that will perfectly suit your financial standard and go ahead to work hard in that area.

In the next article we covered one business at a time explaining how to do it and make money .


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