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Types of business

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Accounting Basics

Types of business

Different types of Business

There are three types of businesses

  • Sole trader
  • Partnership
  • Companies

Sole trader

It is a type of business in which there is only one owner and all else are its employees, it is the type of business in which most the small business owners are operating which you see on the streets, these businesses have unlimited liability.

It means if your business will shut down in the future and you may require to pay the remaining amount to those people which you had taken the debt.

Partnership

A partnership is a business in which you have more than one owner in places like two owners or ten owners, the unlimited liability is the same for the partnership they are required to pay from their private funds when their assets are not enough to pay their liabilities.

The main reason for unlimited liability is that owners are participating in decision making and they are fully responsible for their business as they have control also they are in the decision making of the business.

So that’s why they should pay from the private funds if their assets are not enough to pay off liabilities when the business will shut down.

Companies

These are those types of businesses that have a large amount of ownership in control and they have part of equity through investing into a small amount in the business, the companies have limited liability in place which means the owners don’t pay liabilities from their private funds

The reason behind this is the ownership and decision-making are very different in companies owners are not directly involved in decision making so they are not held liable for loans which the business will take so that’s why it is limited liability.

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