For the purpose of ownership and responsibilities,
economic entities are classified in three main categories.
Proprietorship: A proprietorship is a business
owned and operated by one person. It can just be a
type of business with one person such as a hair
braiding salon or a small convenience store. A proprietorship
is usually the starting place for a company. For example, a person may
decide to open a company that sells auto parts, based on his previous
experience from working in a car repair shop.
A proprietorship usually starts from nothing or (very)
low budget, in the hundreds of dollars.
For taxes and responsibilities purposes, in a
proprietorship, the owner of the business is personally accountable for
everything, including expenses, benefits, losses, and government
Partnership: A partnership is a business owned
by two or more people who work as an association.
Usually, in the beginning, two or more friends, two or
more family members, or two or more acquaintances get an idea, their own
money, and decide to start the business. They usually also define, orally
or in writing, how they would proceed, how the responsibilities would be
shared, and how they would eventually address those issues they can
already foresee (of course, other issues would come up as things change).
Although not a legal requirement, the business
partners should put in writing as many issues as possible. These would include:
- Each person's original financial contribution
- Each person's role
- Each person's benefits (earnings)
- Issues resolution:
- What to do if this or that bad thing happens
- What to do when a member does not live up to his or her
- What to do if a member withdrawals, retires, or dies
Corporation: A corporation is a small, medium, or
large company that is registered with the local, state, and federal government
with many legal ramifications. The budget is usually considered in terms of
stocks held by internal and external entities (people) with the ability to
exchange (buy or sell) what they own in the company. The entities that own these
stocks (they are called stockholders) do not have personal responsibilities with
the company, or they are said to have (to enjoy) limited liability towards the
company. For example, if the company is successful, the stockholders make money.
If the company is failing, the stockholders may lose money but their person
assets (such as houses or cars) would not be seized.