Types of Businesses

The types of businesses fall into 6 categories:

• Sole Proprietorship
• Partnership
• Corporation
• Business Co-op
• Franchising
• Home Business
  

SOLE PROPRIETORSHIP

You and your business are considered to be the same.

PROS

• Most simple type of business
• Usually only one person is involved and the business can be run under the persons name.
• Most inexpensive type of business to start up
• Business taxes are paid through personal income taxes; therefore, any loss can be deducted from income taxes.

CONS

• If you can't pay your debts or your business fails, your personal and business assets (your property and belongings) can be seized.
• If the sole proprietor (owner) dies, the business dies also.
• Business income is considered to be owner's personal earnings. Business and personal taxes are calculated at the same rate. The more the business makes, the higher the personal tax you pay

PARTNERSHIP

A type of business that two or more people run together, for profit.

PROS

• All partners share the business losses or liabilities and responsibilities, instead of only one person
• Partners pay business income taxes in relation to their share in the business
• Partners may have complementary skills and experiences that one person alone as sole proprietor may lack
• Financial support is possible from each partner.

CONS

• Each partner shares liability (consequences and responsibilities) for the other partner¹s actions - You may have to pay for your partner's mistakes. A great deal of trust is needed among partners
• Business and personal assets can be seized
• If a partner dies, drops out of the partnership, or if a new partner joins, then the existing partnership dissolves.

CORPORATION

This is also known as a 'limited company', or as 'incorporating'. A corporation is considered as a separate and legal entity; as if it were a separate 'person'. Its owners are known as shareholders, officers, or directors.

PROS

• No person in the corporation is personally responsible, or liable for the business¹ debts or actions. If the corporation goes bankrupt, only the business assets can be seized.
• A company can choose to be federally or provincially incorporated, depending on the scope of the business
• If an owner leaves or dies, the corporation is not affected.

CONS

• There are many extra costs and legalities with corporation compared to the other types of business.
• There is an initial cost to become incorporated usually through a lawyer.
• Company losses cannot be used for lowering income taxes.

BUSINESS CO-OP

This is a specific type of corporation.

PROS

• Each person is liable only to the percentage of shares owned; for example, a person who owns 5% of the shares is liable only for 5% of the business.
• Members share support, skills, experience and raise the money needed for start-up costs from their individual contribution.

CONS

• Similar to those of the regular corporation
• A person who owns larger shares also accepts larger liability

FRANCHISING

Franchising is a way of doing business and of marketing products or services. The original company, called the 'franchiser' allows someone else called the 'franchisee', to operate its business by selling their products or services in a certain way.

PROS

• The franchisee is allowed to use the established trademarks, images and proven methods of operating the business. This usually cuts down the risk of failure, since the franchisee doesn't start completely from scratch.(eg. McDonalds is a franchise)
• Usually most of the research , advertising, promotion, marketing and planning has already been prepared by the franchiser, and is given or taught, to the franchisee. So the franchisee doesn't have to do this.

CONS

• The franchisee pays the franchiser a start-up fee and royalties, which are regular costs for using the franchiser's methods, business name, images and trademarks, and for selling it's products or services.

HOME BUSINESS

There is a growing trend toward home businesses. Changes in technology and the lowering costs of computers, faxes and modems, allows home business to have lower start-up and regular operating costs.

PROS

• Lower start-up costs; you don¹t pay rent for an office
• No or little additional regular expenses such as lighting, heating etc.
• No need to commute to work
• More time spent with family

CONS

• Certain businesses do much better with an office, or retail outlet
• You have less privacy if customers must come to your home to do business.