Types of Business Ownership Structures

A business ownership should be structured according to the needs of the owners and potentially liability that the business could incur. The different types of business ownership are

Sole proprietorship

Partnership

Limited Liability Corporation

Corporation (for profit)

Nonprofit corporation

Limited Partnerships

This type of business organization is costly and complicated to prepare. It is not recommended for the average small business owner. Limited partnerships are usually created by one person or company who solicits investments from others. The people who invest are considered the limited partners. The general partner is in charge of the business’s everyday operations. They are personally liable for business dents. Limited partners have little control over daily business decisions or operations. Because of this they are not personally liable for business debts or claims.

A Corporation

The most significant benefit to forming a corporation is that it limits the owners’ personal liability for business dents and any court judgments against the business. A corporation is an independent legal and tax entity. This sets it apart from other types of businesses. The owners do not use their personal tax returns to pay tax on corporate profits because the corporation itself pays these taxes. Any money drawn from the corporation in the form of salaries, bonuses, etc is paid by the owners in their personal income tax returns.

Limited Liability Corporations

Limited Liability Corporations provide their owners just that, limited personal liability for business debts and claims. However, LLCs resemble partnerships when it comes to taxes. The owners of an LLC pay taxes on their shares of the business income on their personal tax returns. This type of organization is good for business owners who either

Could be sued by customers

Run the risk of piling up a lot of debt

Have substantial personal assets they want to protect

Sole Proprietorship and Partnership

A sole proprietorship, or partnership, is the ideal ownership structure for an up and coming business or the average small business. They do not have to be registered with the state and go into effect as soon as one person goes into business with themselves or two or more people go into business together. Any business income is reported on the owner’s personal income taxes. They are also personally liable for any business debts or court decisions against the business.

For more information on business ownership structures, visit www.businessdirectoryforyou.com

7 Key Steps in Transitioning to Business Ownership

The key question is why some businesses fail and others succeed. This is a debatable question and there are many opinions on this subject. However, I believe the core of the problem lies in the inability to develop good business habits from the onset of the transition into business ownership.

Too many people jump into business without fully understanding the level of involvement required to run a successful business. A common mistake, often made, is miscalculating the volume of effort needed and the resilience required to manage the ups and downs of business ownership. The bottom line is that those who are not mentally prepared for the journey of transition will have difficulties with business management and growth.

Here are 7 important steps to consider in transitioning to business ownership:

  1. Develop a business plan from the inception of the business all the way to the exit strategy. The best way to begin the process is to start with a vision which is often the big picture outlook. You can go about this by writing down everything you want to achieve. Consider this exercise the playground of ideas and exploration; a place where you have emptied all your toys to get a clear picture of what’s available in order to contemplate your next move.
  2. Take an inventory of your skills and abilities. Understand your strengths and weaknesses. This exercise will be helpful in the future as you come face-to-face with the daily management of the business. Don’t try to do it all. Don’t haggle with those things you are not strong in. Seek out the experts; it is well worth the investment.
  3. Know your industry thoroughly. Stay informed and be aware of the trends and how they can affect or impact your business. All the while, be ready to make necessary adjustments to your business strategies, such as implementing new approaches to old challenges based on what’s taking place in your industry.
  4. Set powerful goals and work towards achieving them because they are the lifeline of your business. Follow the SMART acronym for setting goals. Be sure they are Specific, Measurable, Attainable, Realistic and Timely. Select goals that reflect the different aspects of your life, such as spiritual, business, family, etc. Les Brown says: “Life takes on meaning when you become motivated, set goals and charge after them in an unstoppable manner”. Without goals we function aimlessly and have purposeless lives. Goals give direction to fulfilling one’s purpose.
  5. Integrate your marketing strategy into your business. Remember that the business plan is the guiding tool and is not an ornament for display. Follow the strategy and adjust as needed. Though the foundation will stand, but the implementation may vary. Get to know the pain points of your target market. Understanding their needs and challenges is critical in developing appropriate solutions to solve your clients’ problems.
  6. Build up a network of support. In addition to our own self motivation, much is said about external motivation and inspiration when interacting with other like-minded individuals. Take time to be inspired by the success of others and learn from their mistakes.
  7. Apply technology to streamline the business. Make deliberated efforts to keep up with technology as it relates to your business and apply it to improve business efficiencies and enhance management. Understand how technology can be useful and appropriate in your business.

There is no doubt business ownership helps to realize dreams. It also requires consistent, intentional, and deliberate actions to deal with industry changes and other economic factors that can adversely affect the business. At times we need additional direction and support to transcend to the next level. Don’t overlook the high returns you will achieve when you make the right investment. They can make the difference in running a successful business.

Exploring Business Ownership – Traditional Employment is Not Risk-Free (Part 4 of 7)

In previous articles we’ve talked about the personality types that have the best chance of business ownership success and helped you define your goals for wanting to be in business. Now we’ll explore how entrepreneurs, franchise owners, and employees generally think. Where will you find a match?

How You Think Vs Your Risk Tolerance

As I’ve shared previously, business success is far from guaranteed so it’s important that you assess your tolerance for risk before committing funds to any business venture. One very general way to assess your risk tolerance is by analyzing the way you think.

Generally speaking, there are three main ways to earn income in increasing order of personal risk; employment, franchise ownership, and entrepreneur business ownership. We’ll explore each to see which you identify best with.

The World of Employment

Employee think is:

I did what I was supposed (or told) to do and I can prove it.

If you’re most comfortable with a narrowly defined set of responsibilities, expect your desk (or tools or equipment) to be provided for you, want to call the IT department when your computer hangs up, crave regular working hours with paid vacation and holidays, and expect benefits paid by someone else, then you’ll probably be most comfortable in an employment situation.

When employment is a good fit you feel most comfortable when you do your part as a team member and leave the business consequences of your work assignment to others. If this describes you, take heart! There’s absolutely no shame in being an employee! In fact, most of the business world is made up of employees who willingly do their part and receive a fixed hourly or salary income in return.

Traditionally employment has also had the least amount of risk for loss of income, although that’s becoming less true. For several decades following World War II there was an unwritten social contract between large corporations (and even many smaller businesses) and their employees that went something like this:

If you come to work with us and work hard, then you are welcome to stay with our company as long as you like. We will retrain our loyal employees to take on new tasks and responsibilities because they are our most valuable asset. We will take care of you with good benefits and if you stay with us long enough we will also provide for your retirement.

Contrast that historic practice with the current social norm of viewing employees as a commodity to be hired when needed and laid off when not.

Risk Assessment

Employment and depending on others for income who may not have your best personal or career interests at heart carries the least risk of the three income earning options. But it’s not risk-free and is far more risky now than it used to be. Let me suggest the book The Disposable American: Layoffs and Their Consequences, by Louis Uchitelle, for further reading (I have no financial interest in this book).

Didn’t identify with “employee think?” Check out part 5 where we’ll explore how franchise owners think.