A Guide on the Various Types of Businesses (And Their Pros)

By Indeed Editorial Team

Published June 10, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

An important feature of any business or organization is its structure. The structure of a business affects several components of the organization, such as personal liability and taxes. As a result, understanding the different business structures can help you learn about the structure in your workplace and the best practices for such a structure. In this article, we discuss common types of businesses and explain their advantages, outline the types of partnerships, explore the types of corporations, and highlight some skills necessary to start a business.

Common types of businesses

Here are three common types of businesses and their advantages:

Sole proprietorship

A single individual owns the organization and manages all operations in this type of business. The sole proprietorship is the most popular ownership structure because it's the easiest to set up. This structure is suitable for individuals who want to work alone. An important characteristic of this business structure is that the owner is personally liable for all financial obligations such as losses and debt. In addition, the sole proprietorship structure is suitable for home-based, low-risk, or retail businesses. Some owners may also use this arrangement to test a business idea before building a formal company.

Some advantages of the sole proprietorship include:

  • Complete control: The owner has complete authority over business decisions and doesn't consult with directors, partners, or other shareholders.

  • Easier startup: Setting up a sole proprietorship doesn't require the owner to pay government fees or fill out any forms.

  • Simple tax reporting: As the business isn't a distinct entity, the owner may include the income and expenses in their income tax and gain a higher tax return by using the business losses to balance out the income.

  • Privacy: Businesses that operate this structure may enjoy a higher level of privacy than other structures because they may not be subject to public disclosure.

Related: What Is Self-Employment? Definition and Common Types

Partnership

This type of business involves two or more owners controlling the business. In a partnership, the partners may appoint representatives to handle the daily operations or choose to handle these responsibilities themselves. In addition, people in this relationship sign a formal document that highlights each partner's shares, rights, and responsibilities.

Some advantages of a partnership include:

  • Simple startup: Creating a partnership may not require the parties to file any paperwork with the federal government. In contrast, it may be necessary for the partners to fill out forms in the province they want to establish their business.

  • Few tax forms: It may not be necessary to file business tax returns in a partnership as the business doesn't pay taxes directly. Rather, the partners may include the business profit and losses in their personal income tax returns.

  • Shared finances: Creating a partnership may help reduce the financial burden of building a company as the partners can share overhead costs and purchases. In addition, banks may be more open to offering loans to multi-owner businesses, which can help finance the business, especially in the early stages.

  • Combined knowledge: Partners complement each other by sharing their knowledge and providing their expertise in different business areas. In addition, having different opinions may help bring various perspectives to decision-making and handling business operations.

Corporation

In this type of business, the company is a separate entity independent of the owners. A corporation is more expensive and complex as it's mandatory for the business to comply with more regulations, taxes, and record-keeping requirements. In addition, established medium or high-risk businesses may choose this structure if they want to raise funds, plan to take the company public, or sell it.

Some advantages of this business structure include:

  • Liability protection: The owners aren't responsible for the corporation's debts, ensuring that their personal assets remain protected. In addition, as a separate entity, the company can receive and file lawsuits independent from the owners.

  • Continuity of business: Ownership in a corporation depends on the percentage of stock held, allowing the company to exist even when a shareholder sells their shares or leaves. In addition, this ownership structure offers more flexibility in transferring ownership.

  • Quick capital: Corporations can get funds from selling the company's stock and save costs by offering shares to employees as benefits. This helps support the business and spur growth.

Types of partnerships

The two types of partnerships include:

General partnerships

In this relationship, the partners have an equal role in the ownership and operations of the company. They also equally share the business liability, such as financial obligations, debts, and the consequences of other partners' actions. General partnerships are also limited liability partnerships (LLP).

Limited partnerships

This partnership structure includes general and limited partners. The general partners hold the same responsibilities and liabilities as in a general partnership. In contrast, the limited partners are typically investors, and they have limited input, control, and little or no liability. In limited partnerships, the profits reflect in the personal tax returns.

Related: What Is a Structure of Business? Understanding 3 Main Types

Types of corporations

There are various types of corporations based on their tax obligations, and they include:

  • Canadian-controlled private corporation (CCPC): This is a corporation that enjoys private ownership. It's compulsory that control of such a corporation is in the hands of residents and a group of private individuals.

  • Other private corporation: This is also a private ownership structured corporation in the control of a resident. They're companies that don't meet the stringent requirements of Canadian-controlled private corporations.

  • Public corporation: Public corporations usually have their shares listed on a Canadian stock exchange and have their residence in Canada. Usually, any member of the public can purchase shares in this type of corporation.

  • Corporations controlled by a public corporation: These are usually subsidiaries of a public corporation as its control is in the hands of another public corporation.

  • Other types of corporations: These are corporations that don't fit into any of the categories identified above.

Essential skills for starting a business

Here are some essential skills to help you start a business:

Leadership skills

Excellent leadership skills are an important characteristic of most business owners. It's important for you to have an ambitious goal and a clear vision when starting a business. In addition, it's essential to have the necessary skills to persuade others to follow your vision, support, share, and feel motivated to work towards it. Similarly, while you might start small, you may intend to expand your business in the future. As a result, it's important to have the necessary leadership skills to organize and guide people effectively.

Communication skills

A successful business owner requires excellent communication skills because your duties may require you to convince investors, stakeholders, and customers to trust your brand. As a result, it's essential for you to know how to clearly, confidently, and patiently communicate your goals with relevant parties. In addition, good communication skills help you effectively delegate responsibilities to other employees and ensure they understand their roles.

Active listening skills

You may contact different people, including investors, employees, and customers, as a business owner. It's vital to have great listening skills to take in criticisms, suggestions, and constructive feedback. In addition, this skill may help you build profitable relationships because when you listen and apply the opinions of others, it may encourage them to continue working with you.

Time management skills

In the early stages of setting up your business, you may have numerous deadlines to meet to ensure you keep your business active. It's important for you to know how to work within a defined time frame and deliver quality results. You can also consider learning how to multitask efficiently to ensure you complete the necessary tasks.

Networking skills

Networking is an essential skill to help you grow your business. It's essential to maintain relationships with people or brands that support your idea and can help scale your business into a successful enterprise. To succeed as a business owner, it's important to have relevant interpersonal skills to help you maintain these relationships.

Resourcefulness

As a business owner, it's essential to identify market patterns and trends in consumer habits. Being resourceful also helps you create opportunities out of complications and unfavourable situations. In addition, it helps you make better financial decisions, maintain an open mind, and be proactive when working towards your objectives. Resourcefulness can ensure you increase your resources and remain innovative as your business grows.

Related: Essential Entrepreneur Traits to Help Your Business Succeed

Risk-taking

As a business owner, it's advisable to take necessary risks to afford you opportunities to grow. The primary goal of a business owner is to identify a gap in the market and develop services and products to meet the demand. As a result, you risk resources and time when attempting to develop products or services without guaranteed success.

Confidence

Self-confidence helps you trust your expertise and abilities. As a business owner, you may encounter numerous challenges throughout your career. With a high level of self-confidence, you can view these challenges as learning opportunities and avenues for growth. In addition, confidence can help you maintain your values and make the right decisions for the business.

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