When it comes to capital, employees, and machinery, a small business is defined as one that operates on a much more modest scale.
Scaled-down companies that manufacture or provide a service on a limited scale are categorized as small businesses or industries. A country’s economic growth is directly tied to the success of these types of small businesses. The owner either makes a one-time purchase of machinery, industries, and plants or enters into a long-term lease or hire purchase agreement.
Let us look at a list of small business categories that you can open without having to worry about scaling up or initial capital issues.
Sole Proprietorship
The sole proprietorship is the most basic of the small business categories’ structure, consisting of an unincorporated company owned by a single person. As a result, it is not considered a distinct entity from its owner for legal purposes.
The formation of a sole proprietorship requires the fewest administrative steps and the least amount of paperwork of any business structure. In fact, you are already operating as a sole proprietor if you are charging customers directly for your services or products. Most business losses can be deducted directly from your personal tax return if you operate as a sole proprietor. There is no need to submit a supplemental tax form.
General Partnership
In a general partnership, you and at least one other person own an entity that functions similarly to a sole proprietorship but is owned by all of you. Since no official documentation is necessary, you can begin your partnership agreement with just a handshake.
When filing your individual tax returns, you and your partners can claim a loss for your business. However, this also means that you have no say in the matter. When you form a business with others, you give up some of the control you would have had if you were working alone, and a major disagreement between you and your partners can be disastrous for the company.
To the same extent as a sole proprietorship, you and your partners will be held personally liable for the business’s debts and liabilities if you form a general partnership. That means you should get liability insurance in case your partner does something foolish or careless and you end up paying for it.
See Also:
Limited Partnership
A limited partnership is a form of business ownership in which at least one of the partners is not actively involved in running the company. In some cases, you may be able to restrict the amount of damage you can be held responsible for. Although limited partnerships share many of the same benefits as general partnerships, they differ significantly in one key respect: limited partners who assist in the formation of a company do not assume the same liability risk as full partners. Your personal liability is limited to the amount you put into the company.
a framework for lasting collaboration. In the event of a silent partner’s departure, the partnership will not automatically end.
C- Corporation
This is a company that exists in its own right under the law and enjoys many of the same protections as a natural person would. It has the legal capacity to borrow money, sue someone, acquire property, and enter into contracts in its own name.
One of the biggest benefits of forming a corporation is the ability to maintain your privacy. A corporation bears all the legal responsibility for its actions, unlike a partnership or sole proprietorship. This means that you may not have to pay any of the costs associated with a major lawsuit filed against your company. More tax breaks are available to this type of small business than to other business structures, and C-corporation owners may also have lower self-employment tax bills.
S-Corporation
This unique corporation structure can be used to sidestep the issue of double taxation.
An S-Corporation may be the best option if you seek the benefits of a corporation but are wary of being double taxed on your business income. As a result, you won’t have to pay any corporate tax on the money you make or lose as a business owner.
insurance against legal responsibility. If you form an S-Corporation instead of a C-Corporation, you will be much less likely to be held personally liable for the debts of the company.
Limited Liability Company (LLC)
The formation of a limited liability company, or LLC, is common among small business owners because it limits the owner’s personal liability. You can start an LLC on your own or with others, and its structure combines those of a sole proprietorship, partnership, and corporation (called LLC members).
An LLC abates the danger of being held personally responsible for anything. A limited liability company (LLC) shields business owners from personal responsibility for business debts. Having an LLC establishes a legal barrier between your business and your personal assets, protecting the latter in the event of a lawsuit against the former.
In Conclusion
If your company qualifies as any of the different types of small businesses, it may be able to apply for federally backed loans. Loans from the Small Business Administration (SBA) typically have better terms and interest rates than those provided by traditional lenders. Your company’s chances of being approved for such a loan may also be higher than they would be at a large, private bank. Other types of loans are available to small businesses as well, such as the cash advances offered by E-Boost to vendors based on their past sales.
How much you can borrow from the Small Business Administration (SBA) is determined by the loan program to which you apply, so reach out to us, and we’ll guide you along the way.
