The planning stages of a business tend to be a bit hectic if for no other reason than they are where you really are given the chance to develop the plan for your business that you will refer to thousands of times over the course of the life of your business. One of the numerous things that you need to decide during this time (or at the very least give some thought to) is what type of business you are going to run. This has nothing to do with the actual business niche itself, but rather the actual legal type of business that you are going to be involved in. There are a number of different business types in the legal sense and while those types vary from country to country, there are general consistencies along a few major distinctions.

The first of those distinctions is the business type known as a sole proprietorship. This is the most common business type simply because it is the easiest one to start with. A sole proprietorship consists of the business being wholly owned by one person and therefore being associated with that one person. The business expenses and liabilities are assumed by that one person, but at the same time that one person has total control over everything that the business does. Sole proprietorships are free to start in terms of legal registration and do not require a separate tax return in most cases as the income from a sole proprietorship is usually just reported as self employment income.

Taking the next step up from a sole proprietorship, we come to the concept of a partnership. There are a number of similarities between the two business types and the most obvious ones to point out are that partnerships are cheap and easy to run in the legal sense because all of the partners can usually just report their share as self-employment income rather than requiring another tax return for the business. The partners also share responsibility for the business by default in a legal sense unless there is an agreement that specifically assigns responsibility to one partner.

Up from a partner is a private corporation. This is a business that is a separate entity from the people that run it; all of the liabilities are the businesses and for the most part the people running the business can not be held responsible for those liabilities. However, the maintenance of a corporation requires regular fees to be paid as well as up front registration fees and regular records of the business affairs must be kept along with regular board meetings. Also, a separate tax return for the business is required because it is a separate entity.