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10 Types of Business Ownership and Classifications

10 Types of Business Ownership and Classifications

When planning to start a new business or upgrading your small business, there are important things you must learn. As a business owner, it is your job to understand the new world you are about to step into. When venturing into the business world, it is extremely important to understand what are the different classifications or types of business ownership in order for you to be able to determine the kind of business you are running. So, here are the 10 different types of ownership and classifications.


Sole Proprietorship is a type of enterprise that is usually owned by one person. This is commonly known as the default structure of a business that has not processed any legal work. This is the simplest form of business ownership.

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When you team up on a business without filing paperwork through the state, it is considered a partnership. Partnerships are commonly practiced in professional firms.

3. LLP

Also known as Limited Liability Partnership, LLP is a liability that is legal in some states where it allows partners the simplicity and pass-through taxation while limiting the liability between the two. A formal operating agreement along with registration with the secretary of state is required

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4. LLC

A limited liability company or LLC is formed when articles of the organization along with the registration with the secretary of state are filed. This allows the owners to retain the advantages they can get from a sole proprietorship with legal limitations and financial liability. This is commonly used for small businesses.


This allows a head LLC to form multiple LLC under its wings. These nested businesses’ purpose is to divide the liabilities into different business units. Even with multiple internal LLCs, registrations for legal purposes can be done once through its head LLC.


A corporation is formed by electing various shareholders who have different controls, functions, and involvement in the operations. Through the board of directors, these people represent the further separation between the business and the owners.

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Other corporations try to elect themselves as an S corporation to take advantage of the benefits of pass-through taxations. In order to qualify, they should have no more than 100 shareholders and are allowed to issue one class of stock. Certain individuals, trusts, and tax-exempt organizations are only allowed to own shares in this type of corporation.


Nonprofit corporations are formed by applying for tax-exempt status. The formation is still the same as other corporations with an article of incorporation filed along with the secretary of state, the board of directors, and bylaws of the governance. The profits generated by the corporation should be invested in another nonprofit operation in order to fulfill its charitable mission.


Benefit corporations serve a public benefit while still earning and gaining profits for the corporation. This is still structured with a board of directors that is responsible for keeping track of the social impact and financial status.

10 L3C

Low-Profit Limited Liability Company or L3C combines the structure of an LLC while running a charitable mission like a non-profit. However, L3C is extremely rare since this should not be formed for any political or legislative missions.

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5 Online Businesses You Can Start With No Money

5 Online Businesses You Can Start With No Money