List of Top 9 Types of Business Entities
- Private Company Limited by Shares
- Public Limited Company (PLC)
- Limited Partnership (LP)
- Unlimited Partnership
- Statutory Corporation
- Holding Company
- Subsidiary Company
- Sole Proprietorship
- Limited Liability Companies (LLCs)
A business entity is an entity that that carries out business activities as per the respective laws of the country and can be of various types including private company, public company, limited and unlimited partnerships, statutory corporation, holding company, subsidiary company and more. The form in which an entity is established is very important as different entities are subjected to different laws and also carry different features.
Let us discuss each one of them in detail –
#1 – Private Company Limited by Shares
It is a type of privately held company wherein the liability of the shareholders is limited to the amount of share capital paid up by them. As a result, the personal assets of the shareholders can’t be resorted to in case the company goes insolvent. In such a case when the company goes insolvent, the maximum amount that can be lost for a shareholder is the amount of share capital paid by him. Also, the shares of such a company can’t be listed on the stock exchanges for public tradingStock Exchanges For Public TradingStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ.. Normally a private limited company is subject to fewer disclosure requirements than a public limited company.
#2 – Public Limited Company (PLC)
It is also a type of company in which the liability of the shareholders is limited to the extent of share capital paid by them. However, such companies are free to offer shares to the general public. That is why such companies are also known as “publicly traded companiesPublicly Traded CompaniesPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market.”. They may either be listed on the stock exchange or may not be listed. There may be requirements concerning minimum share capital depending on the law of the land in which the company is incorporated. In the UK such a company must include at the end of their names, words “PLC”.
#3 – Limited Partnership (LP)
Limited PartnershipLimited PartnershipIn a limited partnership, two or more individuals form an entity to undertake business activities and share profits. At least one person acts as a general partner against one limited partner who will have limited liability enjoying the benefits of less stringent tax laws. is a type of partnership wherein there shall be at least one general partner and one limited partner, unlike general partnership wherein there shall be at least two general partners. The general partnersGeneral PartnersA general partner (GP) refers to the private equity firm responsible for managing a private equity fund. The private equity firm acts as a GP, and the external investors are limited partners (LPs). carry the same legal status as that of other partners in the partnership and as a result, they along with other partners are jointly and severally liable for the liabilities of the partnership.
#4 – Unlimited Partnership
As the name suggests, it is a kind of partnership arrangement where the partners have unlimited liability. This means in case the assets of the partnership are not sufficient to meet the liabilities, then even the personal assets of the partners can be deployed to meet such liability.
#5 – Statutory Corporation
It is a type of entity that is created by the state itself. The nature of such corporations will depend on the jurisdiction under which they are created and thus, may depend from one jurisdiction to another.
#6 – Holding Company
Holding CompanyHolding CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies. refers to a company that owns the share capitalShare CapitalShare capital refers to the funds raised by an organization by issuing the company's initial public offerings, common shares or preference stocks to the public. It appears as the owner's or shareholders' equity on the corporate balance sheet's liability side. of another company. Such companies are also known as parent companies. Such companies may or may not be carrying out business activities themselves. Sometimes these companies are created to hold the intellectual property for the subsidiary company. There exists a criterion for a minimum shareholding in a company, to be called the holding of such a company. A company if holds the prescribed shareholding in another company, will be known as holding company of that other company.
#7 – Subsidiary Company
Subsidiary CompanySubsidiary CompanyA subsidiary company is controlled by another company, better known as a parent or holding company. The control is exerted through ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries are either set up or acquired by the controlling company. is a company that is owned or controlled by another company (known as a parent or holding company). A subsidiary may be created either by one company being holding prescribed share capital company or by way of one company exercising control over the composition of the board. The company of which share capital is held or on whose board of directors the control is exercised is said to be a subsidiary company.
#8 – Sole Proprietorship
In the case of such an entity, there exists no separate legal entity and as such, there is no difference between the owner and the entity. It is controlled and operated by a single person only. The liability of such sole proprietor is unlimited and he is the sole owner of assets of the business.
#9 – Limited Liability Companies (LLCs)
LLCLLCLLC stands for Limited Liability Company. A Limited Liability Company is a combination of partnership or sole proprietorship and a corporation and has emerged in the United States, in which the owners' or investors' liability is limited by the amount of stock they own or by any other defined means. is a type of body corporate that is prevalent in the U.S. In the case of such entity, pass-through taxation is followed which means that LLC is not subjected to taxation and instead members are liable to pay tax on the income of the LLC. Also, the liability of the members is limited in the case of LLC. It is known to be a hybrid entity having features of both, corporation as well as partnership. This is because the liability of members is limited as in the case of a corporation and pass-through tax structure is followed as in case of a partnership.
This has been a guide to Types of Business Entities. Here we discuss the top 9 types of business entities that include corporations, partnerships, sole proprietorships, cooperatives, limited liability companies, etc. You can learn more about financing from the following articles –