3 Types of Business Entities (Definition and Explanation) Financial Accounting Business Strategy – Resi.co.id
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Resi.co.id – Before discussing more deeply about the types of business entities, the admin will introduce the meaning of business entities first.
Business is the trading activity of a single person, group of people, commodities, and organizations where the objective of the activity is to generate profits directly or indirectly.
Business is the size or nature of any activity that can generate profits or returns on what they invest directly or indirectly.
The business can be in the form of commercial or industrial commercial transactions to supply goods or services.
Businesses range from minimal entities of a few members to large ones with one hundred thousand staff like Facebook and Google.
And what is meant by profit is the excess of income over expenses during the period. The following is a list of types of business entities.
This list contains four types of businesses, including Sole Traders,
1. Sole Trader
Sole Trader or Sole Trader is a type of business entity that is owned, operated, and managed primarily by one person.
For the most part, single merchant ships employ few employees and do not have many business transactions.
The bookkeeping of the sole trader’s business is also not as complicated as the others. These types of businesses are usually formed by entrepreneurs and get many exceptions for legal and tax purposes.
A sole trader cannot legally separate his debts from the entity once the business goes into liquidation. Personnel assets can be used to compensate for liabilities.
Some of the advantages of a sole trader are fewer legal requirements, may get many tax exemptions, the owner controls the business and assets directly, and is very flexible.
2. Limited Liability Company
Most large corporations or corporations are registered under a limited liability company. By law a limited liability company, the personnel assets of the shareholders or owners of the company are legally separate from the entity or company.
This type of company usually has a complex management structure as well as a board of directors, many legal documents are required.
Shareholders of this type of entity are usually companies as well as individuals. Different legal jurisdictions may require different legal documents.
As the name suggests, this type of business entity is formed by at least two partners to run the business. Business partners usually have expertise in certain skills or knowledge.
Some of the disadvantages of this type of business entity in each partner owe the obligations of others. Usually, this type of business experiences a lot of conflict.
To form a federation, members are usually done with a federation agreement.
Partnership benefits include:
- Less stringent reporting obligations – no requirement to make financial accounts publicly available, no audit requirement, unless the partnership has LLP status.
- Additional capital can be obtained as more and more people invest in this business.
- Division of roles and responsibilities and improvement of expertise.
- Share risks and losses between more people.
- There is no corporate tax on the business (profits are shared with partners and then subject to personal taxes).
That’s the information that admin can convey this time about 3 Types of Business Entities (Understanding and Explanation) Business Strategy, Financial Accounting, hopefully the discussion above can be helpful and useful.
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