Are you thinking about starting a small new business that rains down profit? Do you scratch your head about which types of companies to start the business? Or just hoping to avoid starting a business under the challenging industry?
Entrepreneurship is a hard game because no college or educational institution ever prepares you for that. In this regard, you have to think about the legal structure of your company.
The decision will make a huge impact on how much to pay taxes, paperwork, and to know different types of companies. Read along to find out about which types of companies will be ideal for your small business!
What are the Types of Companies Available Out There? Why is it Important to Know?
Companies are classified depending on various factors like the mode of incorporation, the number of members, and the liability of the members. The types are as follows-
- Chartered Company
- Statutory Company
- Registered Company
- Company Limited By Shares
- Company Limited By Guarantee
- Unlimited Company
- Public Company
- Private Company
- One Person Company
1. Types of Companies Based on the Mode of Incorporation
Based on the special act, special order, or whether it is registered the companies are classified into three types mentioned below.
Royal Chartered Companies
These companies are established by the Royal charter where you can get power by the right of Monarch with a special order from the king or queen. The major examples of these companies are BBC, Bank of England, and the East India Company.
It’s quite different from the Royal Chartered Company as the Company will be incorporated with special acts passed from The central or state legislature. These types of companies are responsible for carrying a special business of national importance.
The Reserve Bank of India, Life Insurance Corporation are leading examples for Statutory Company.
Registered or Incorporated Companies
These types of companies incorporated from the rules passed by the Companies act of Government. These types of companies only start after they register themselves under the act of incorporation passed down by the Registrar of Companies.
Google India Pvt Ltd is a great example of registered companies.
2. Types of Company based on the Number of Members
These types of companies are classified based on the number of persons or members involved.
Public Limited Company
As the classification itself suggests it depends on the number of members in the company. For the legal existence of a Public Limited company you need a minimum of 7 members but it is safe to note there is no maximum number of members.
It is separate from its members, and the liability is limited, which is to say the company will not be affected by the retirement or death of the partner. The major decisions are taken by the Board of Directors.
Private Limited Company
Private Limited Company can be formed if you have more than 2 members and less than 50 members. Depending on the owner’s decisions whether the company is limited or unlimited.
This is the popular type of company chosen by Startup owners to be registered as it comes with great options.
One Person Company
One Person Company popularly known as OPC was introduced by the Companies Act of 2013. It is kind of similar to a sole proprietorship but with limited liability.
So that you don’t need to worry about the risk of losses if the company is at the stage of liquidation.
3. Types of Companies Based on the Liability of the Members
These types of companies are classified based on the classification of liability of the members. In this case, the members of a company will be liable to pay from their personal assets depending on the type of liability chosen-
This is one of the types of companies where the liability of shareholders is limited to just the extent of the face value of shares owned by them. Many Pvt Ltd companies adapt Companies Limited by Shares.
Companies Limited by Guarantee
In case of liquidation, the shareholders are supposed to pay a fixed amount to cover the loss and liabilities of the company.
Here there is no limit for the liability faced by shareholders. In the case of liquidation of the company not only the face value, but you might also even have to pay from personal assets to cover the liabilities.
How to Find Which Type of Company Suits The Best for Your Business?
The type of company you choose is not a decision to be entered lightly, people who have encountered this decision have admitted to the horror saying that should have taken time getting advice from the business experts upfront.
So, when you’re trying to make a decision on which types of company is suitable for your business to consider the following points below-
1. Tax Implications
Before choosing the types of companies you must ponder the question, what are the opportunities I get to minimize taxation?
If your company is associated with incorporation it implies double taxation, but it can be imminently avoided with S Corporation. Here, the S corporation is applicable to those companies that have less than 70 shareholder returns.
2. Legal Liability
The first question you must consider when choosing among the types of companies is that to what extent can you bear legal liability. If the business you chose lends to potential liability, make sure you can afford the risk of the liability.
Suppose, you can’t bear the liability it is best to go for a sole proprietorship or partnership business.
3. Cost of Formation
Only tax benefits cannot save you from other expenses that offset the cost of conducting business. The high cost involved in the record-keeping and paperwork that is associated with business owners.
4. Future Needs
Sometimes when people start a new business they will be caught up in lifting the business off the ground that they forget to think about their future needs. Like five or ten years down the road.
Consider the needs of wonder and the structure of the business to maximize the flexibility of the business. If there are many owners involved the situation and goal might change.
5 Things to Know About Companies Before You Start Your Own Business in 2020
The journey of starting a business is not easy. It is brutal. Here are some of the things you better know before starting your business according to the experience of great entrepreneurs.
1. Start Small and Grow
Funding the early stages of your business is a good choice. Because self-funding your business idea and breaking up your product or service into small pieces can increase the growth of your business by gaining much traction. Only then go for external funding!
2. Get a Mentor
Finding mentors is easy, now that there is huge connectivity with sites like LinkedIn and SCORE. Always remember the 10X strategy, your mentor should be a person who earns 10x more than you and has types of company that is much bigger than you!
Based on the advice you can grow your business.
3. Money Alone is Not Enough
Just because you have raised enough capital does not mean the business will kick start. You need an effective plan and a business model that brings in cash flows. People are important to implement your system.
4. Focus on People and Understand the Market
Researching the demographics is important to understand the customer base and to know the buying habits. There are multiple examples of companies going to success who have mastered online marketing and sales.
So, it’s better to watch the competitors, analyze similar businesses, and browse the competitor’s website to know what customers are talking about them on social media.
5. Maintain Strong Work-Life Balance
Lots of entrepreneurs strive to work for 12 – 14 hours a day. Which can be productive at first but eventually in a few years it makes them unproductive. So, start working for normal or lesser hours and find ways to streamline the operations.
Which Types of Companies Make More Profits and Why?
Here are the top 10 Profitable types of companies that are ranked according to their earning potential-
1. Accounting, tax prep, bookkeeping, payroll services: 18.3%
Why: As the accounting firms can be operated with few computers and to avail of the professional level services no company dares to cut corners, it will remain a profitable business for a long time.
2. Legal services: 17.4%
Why: Legal services have a massive untapped market for its services with Goliaths.
The reason why the capital is pouring into legal services is because of them as it has become more customer-aligned, tech and process enables, improvement with technology platforms and differentiated models.
3. Lessors of real estate: 17.4%
Why: In recent eras, these types of companies have shown consistent growth and positive earnings when the researchers have compiled the financial data and ratios.
4. Outpatient care centres: 15.9%
Why: When compared with inpatient care, the outpatient care centre needs more human and financial capital with advanced technology. The expanding services include the re-configuration of workflow and operational improvements.
The hospitals that receive massive revenues come from outpatient care who is a whopping 21 percent.
5. Offices of real estate agents and brokers: 14.8%
Why: The agents of real estate have the potential to make a butt load of money if they do their research, and pour in more work hours.
6. Offices of other health practitioners: 14.2%
Why: Healthcare is one of the sectors that screams “show me the money” which is a fact. Healthcare is a major financial market driver especially the net profit margin for health practitioners is high with innovations and better care for patients.
7. Offices of dentists: 14.1%
Why: Although many of the dentists are closing their clinics due to the COVID 19 situation, the dental industry realizes great profits even for their minor service. It seems that 30 percent of minor services contribute to an incredible 60% of revenues.
8. Specialized design services: 12.8%
Why: There are many kinds of industries that need the specialized design services of professionals and experts in the field of technical, scientific, and administering projects, Not only that it extends to many more trivial industries.
9. Automotive equipment rental and leasing: 12.5%
Why: As the internet of things technology is popularly used by the automotive rental and leasing industries the market’s share brings more revenues.
Why: There are countless sub-sectors when it comes to real estate, and it is expected to grow exponentially attracting a myriad of million-dollar investments.
What is the difference between public and private companies? Which one is the best?
Here are the major differences between public and private companies-
What do people think about these companies? According to internet research, case studies, and people’s review.
Let’s look at what people are talking about the hot topic of Types of the company-
The Bottom Line
The ultimate advice to start your business is when you’re in doubt don’t do it alone because there are a plethora of online marketing tools that make your position a success.
Yes, commencing a business can be exciting but if you do your homework, and take measured steps with meticulous steps you can achieve the best result with these company types.
1. What is a Limited Partnership (LP)?
Limited Partnership is a type of partnership where the partners contribute financially and are only liable to the extent of the amount of money invested.
2. What is a General Partnership?
This is one of the types of companies where one or two persons join to share in profits, assets, financial and legal liabilities.
3. What is a Corporation?
A corporation in the business is liable for finances and actions which is owned by its shareholders.
4. What is a Joint Venture?
The joint venture is an entity that is established by two or more parties that will share returns, shared ownership, and shared risks and losses.
5. What is a Sole Proprietorship?
A sole proprietorship is not a legal entity rather it is referred to a person who owns the business and entirely responsible for its debts and profits.