12 Types of Businesses: A Guide for Entrepreneurs

ZenBusiness has helped people start, run, and grow over 850,000 dream companies. Freelance photographers may operate from a studio or from their home and offer on-location photo shoots for events like weddings and other special occasions. Many freelance photographers start their businesses with only a camera, a laptop or computer, and a car to get to venues. If you have employees or contractors earning more than $600 in a year, you’ll need to include a W2 or 1099 form for each when filing taxes. You’ll have to pay half of any employees’ Social Security and Medicare taxes.

Choosing the Right Business Structure

For example, the Tax Cuts and Jobs Act (TCJA) is a tax reform that lets business owners deduct up to 20% of their qualified business earnings until 2026. Unlike other business structures, you don’t have to receive approval from capital owners, like shareholders or partners, when making a business decision. As a sole proprietor, you have to pay the full amount of Social Security and Medicare taxes (a.k.a. self-employment taxes), according to the IRS Schedule SE on the 1040 form (you can deduct half the amount). The IRS recommends that sole proprietors pay their estimated self-employment income taxes quarterly to avoid fees or a massive tax bill in April. It is an on-demand grocery delivery and pickup service with a more complex business structure.

Freelance Writing and Content Creation

They might sell their products at local markets, online platforms like Etsy, or through their websites. If you love to bake or prepare food for others as a service–meaning, you’re getting paid to do it–you’re a great candidate for a sole proprietorship. Be aware, however, that if you’re making food and baked goods in your own home, you may be subject to a state health inspection or you may require other zoning permits.

Sole proprietors are the sole owner of the business and have complete control over all decisions. Unlike corporations, they are not required to hold shareholders’ meetings or take votes on management issues. This is the simplest way to establish a company with multiple owners, allowing for shared profits, responsibilities, and liabilities while providing a collaborative approach to business operations. According to the 6th Edition of the Salesforce Small and Medium Business Trends Report, 61% of customers feel like just a number to most companies. As a small or medium-sized business (SMB) — and particularly as a sole proprietor – you have the opportunity to treat every customer as an individual, building personal relationships and fostering loyalty.

Whether you’re drawn to freelance writing, graphic design, consulting, or another passion, understanding the examples and principles of sole proprietorship can light the way to turning your dream into reality. One of the easiest and most straightforward types of small company owners is the sole proprietorship. Even though sole proprietorships are the most prevalent type of entity and are much easier to set up, there are several factors you should take into account before choosing this sort of structure for your new business. Unlike other types of business structures—like LLCs, S corps, or C corps—you don’t have to file any paperwork or pay any fees to establish a sole proprietorship. In fact, any new business with one owner is considered a sole proprietorship automatically. For example, if you do freelance work outside of your normal job where you are a full-time employee, that work is done under a sole proprietorship if you haven’t set up any other type of business entity.

• With the rise of side hustles and finding ways to earn passive income, many people want to know how to professionalize themselves further.
• If you’re running a housekeeping service by yourself, establishing a sole proprietorship can be the way to go.
• However, finding consistent work can be challenging for consultants who lack an extensive network or fail to market themselves effectively.

Because there is no legal separation between sole proprietors and the business, you can be held personally liable for the business debts and other financial obligations. As a sole proprietor, you can even be held personally liable as a result of employee actions. You are personally responsible for all actions of the business or its agents, employees, etc. You can, but it requires you to dissolve the LLC first, which is known as a dissolution.

Advantages of a Sole Proprietorship

You are not even required to register your brand names to start working as a sole proprietor if you operate under your own name exclusively. Due to this, sole proprietorships are excellent for start-up companies, independent contractors, and part-time and home-based companies. Partnerships, like sole proprietorships, are easy and affordable to establish because they don’t require a separate legal entity. And, they can take advantage of flow-through taxes, meaning all income from the business is distributed among the partners and taxed at the individual level. There are different types of partnerships, which makes this business structure multifaceted.

Personal liability

If the services you provide don’t require licensing, you can get started immediately. LegalZoom is not a law firm and does not provide legal advice, except where authorized through its subsidiary law firm LZ Legal Services, LLC. Use example of sole proprietorship of our products and services is governed by our Terms of Use and Privacy Policy. For example, all LLCs must file articles of organization with the state and pay the filing fee.

Sole Proprietorship Examples For Aspiring Entrepreneurs

It may be surprising for people to learn that a franchise owner can also operate independently. The franchisee receives payment from the franchiser in exchange for the franchisee’s use of the company name. Whenever it comes to taxes and other financial duties, an individual franchisee is regarded as an example of sole proprietorship. This strategy can be very successful for a sole proprietor with limited business experience because the franchiser will supply the company model along with assistance for marketing and management. When it comes to business types, one legal entity you’ve probably heard of is the sole proprietorship.

Types of Businesses

You don’t need to formally register your business with the state, unlike corporations or LLCs. However, you may need to obtain specific permits or licenses depending on your industry and local regulations. As with freelance writers, companies often outsource graphic design or other artwork to independent graphic designers or artists. As long as you’re working for yourself and not partnering with other artists, a sole proprietorship will be the perfect structure for your business. Starting an in-home childcare business can be profitable, but doing so involves numerous state regulations regarding the cleanliness and safety of your home, as well as stipulations regarding liability insurance.

This means that the business owner and the LLC are considered separate entities, so their personal assets are protected from lawsuits and creditors. A sole proprietorship is a favorable business structure because it’s flexible and easy to set up. Essentially, you can become a sole proprietor when you’re the only owner and start conducting business. It’s the simplest business structure and most popular option for one-person operations.

• As a Sole Proprietor, there is no legal separation between you and your business.
• Many small businesses, freelancers, and entrepreneurs choose this structure.
• Local stores offer personalized customer service and usually form tight relationships with their communities, ensuring they are both convenient and a trustworthy place to shop.
• They frequently contribute blog posts, articles, and other informative materials to publications that focus on particular industries, causes, and hobbies,or even controversial topics to talk about.
• A sole proprietorship is a business structure owned and managed by a single individual.

Full Control and Ownership

There are over 23 million sole proprietorships currently operating in the United States, making it by far the most popular form of business entity. While that is by no means an exhaustive list of jobs commonly run by Sole Proprietors, I hope it gives you an idea of the range of services they offer. Many entrepreneurs begin as Sole Proprietors and then change the business structure as their company grows and they want to hire employees, limit their personal liability, or expand the business. Owning a bakery with a single location makes your business a good fit for a sole proprietorship because it is stable with low liability potential. You’ll have insurance to cover mistakes, such as food illnesses or slip and falls in your bakery. If you operate your bakery under any name but your own legal name, you will need to file a DBA (doing business as) with the state or local government.

With the rise of side hustles and finding ways to earn passive income, many people want to know how to professionalize themselves further. Instead of starting a small business as a limited liability company (LLC) or corporation, many are opting for a sole proprietorship. Capital losses can be carried forward or backwards, offset against other types of income, or both during tax season. As a result, a sole proprietorship that has recent losses may be able to offset such losses against personal income. Because of this, starting a sole proprietorship is the best option for people who want to go from being an employee to being their own boss over time.