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The following is for informational purposes only

Different Types Of Business Ownership & How Do They Work?

What Are The Types Of Business Ownership?

There are 5 main kinds of commercial organizations (types of businesses) in the US:

  • Sole proprietorship - A business entity operated and owned by one self-employed person (it's the most popular legal entity in the USA).
  • Partnership - A business formation that is co-owned and managed by at least two individuals (it's the least popular legal structure in America). Owners are fully responsible for all liabilities, profits, or losses.
  • S Corporation - a hybrid form of business ownership, mixing the best of a corporation and a partnership and offering better financing chances, limited liability for owners, and no double taxation.
  • Private Corporation - A business type owned by a few people who manage it. Their owners are dissociated from the company's assets and liabilities.
  • Limited Liability Company (LLC) - A flexible business organization with limited liability that's taxed as a sole proprietorship or a partnership – depending on how many people are involved. Compared to a corporation, it's much easier to run and involves less paperwork.

How Do You Classify The Size Of a Business?

By the number of employees they have, companies are split into:

  • Micro enterprises (1 to 9 employees);
  • Small enterprises (10 to 49 employees);
  • Medium-sized enterprises (50 to 249 employees);
  • Large enterprises (with over 250 employees).

The first 3 types are often called small and medium-sized enterprises (SMEs). Another popular identifier for business size is the annual revenue, for instance, Small and Midsize Businesses (SMBs) can be:

  • Small – if they make less than $50 million in annual revenue;
  • Midsize – if they generate more than $50 million, without exceeding $1 billion/year.

What Is Considered a "Small Business" In The USA?

business ownership

Broadly speaking, the U.S. Small Business Administration considers a "small business" any company that:

  • Generates $35.5 million in sales;
  • Has 1,500 employees.

However, some industry-related distinctions are made, for instance apart from governmental bodies, any firm that hires fewer than 500 employees and has less than $7 million in sales is usually considered a small business. Here's a shortlist of acceptable sizes of small companies by industry:

  • Construction - no more than $36.5 million in average receipts;
  • Rental, Real Estate, and Leasing – the upper limit of average annual receipts accepted is of $7.5 to $32.5 million;
  • Retail - $7.5 million in average annual receipts and 100 to 500 employee max;
  • Wholesale Trade - the highest number of employees cannot exceed 100-250;
  • Finance and Insurance - a maximum average of annual receipts between $32.5 million and $38.5 million, plus having no more than 1,500 employees.

What Is The Difference Between Small Business And Self-Employed?

The main difference between small businesses and self-employed is that self-employed people are the business themselves (they work alone) while small businesses are business entities (working in teams)run by an owner, who is also an employer. Instead of working alone, he/she hires other individuals to perform tasks and manages them.

How Many Small Businesses Are In The USA?

There are more than 30 million small companies in the United States out of a total of 32.5 million firms. This means that small enterprises with fewer than 500 employees represent a big 92 percent of all US-based companies, while 88% have fewer than 20 employees. 40% of all businesses have under $100k in yearly revenue. If we consider a small-sized business structure any commercial formation with a maximum of 250 employees or up to 1,500 employees, then small enterprises make up a massive 99.7% of all U.S. firms.

What Are The Characteristics Of a Small Business?

To separate small firms for larger business entities, there's a set of features that must apply:

  • Smaller Market – they usually serve limited areas or local communities;
  • Compact Teams – smaller companies don't hire more than 100 people;
  • Small-scale Profits and Revenue – the revenue allowance is limited to $21.5 million per year
  • Fewer Locations – instead of using company facilities, small-sized firms usually operate from one place (service outlet, office, store, or even the owner's home);
  • Sole or Partnership Ownership – to avoid the hassle and costly business registration, they're usually organized as limited liability companies, partnerships, or sole proprietorships.

How Much Profit Does a Small Business Make?

Sole proprietors make almost $47,000 a year, while the average small business owner has an average annual revenue of $73,000. 86 percent of small-scale business owners don't earn more than $100,000 per year in personal income. Their total yearly earnings are between $30,000 and $182,000.

How Many Small Business Owners Are In The US?

How many small business owners are in the US?

There are 30.7 million small-scale business owners in the United States. Small companies:

  • Generate 1.5 million jobs every year;
  • Account for 64 percent of new jobs created in the USA;
  • Together with midsized businesses represent 90 percent of the business population.

Other insightful statistics about small businesses based in the US:

  • 50% of small firms fail in the first 5 years;
  • 8.3% of small firms disappear every year;
  • 82% fail because of cash flow issues;
  • 45% are owned by minorities;
  • 25% of small companies are owned by immigrants;
  • 73% of small-scale company owners are male;
  • 48% of the female business owners are 45 to 65 years old;
  • 60% rely on social media marketing;
  • 50% spend no more than $10,000 a year on digital marketing;
  • $10,000 is the average start-up capital required by a small company owner.

How Many Small Businesses Are Started Every Year In The US?

Approximately 627,000 new small businesses open each year. Statistics show that:

  • 50% fail during the first 5 years;
  • 20% fail within the first 2 years of being open;
  • 65% of new companies fail within the first 10 years.

Most Profitable Small Businesses

What Are The Most Successful Small Businesses?

What are the most successful small businesses?

Based on profitability, the most successful small-scale types of business start-ups are:

  • Tax Preparation and Bookkeeping;
  • Website Design;
  • IT Support;
  • Business Consulting;
  • Logo Design;
  • Catering Services;
  • Mobile Hairdressing;
  • Warehouse Storage;
  • Cleaning Services;
  • Property Maintenance;
  • Marketing;
  • Food Truck;
  • Gardening;
  • Dental Offices;
  • Courier Services;
  • Online Tutoring;
  • Copywriting;
  • A Man with a Van;
  • Real Estate Brokerage Firms;
  • Technology Repair Services ;
  • Legal Services and Law Firms;
  • Fitness Instructors and Personal Training.

What Are Some Examples Of Business Assets?

Business assets are valuable items owned by a firm. Company assets can be:

  • Tangible, physical goods: real estate, computers, cash, office furniture, vehicles, machinery, and equipment);
  • Intangible items (not physical in nature), such as intellectual property, patents, software, trademarks, copyrights, licenses, and goodwill.

Who Owns The Assets Of a Company?

In the case of sole proprietorships, the company assets belong to the sole proprietor, while for limited liability companies, where the company and the owner are two different entities, business assets belong to the company and not to the director or the shareholders. More information can be found in the asset search report.

What's The Purpose Of The Small Business Administration (SBA)?

The SBA is an independent body under the jurisdiction of the Federal government of the United States. It was formed in 1953 to help, guide, support, and protect the interests of small businesses while securing free competition among enterprises and sustaining the overall economic interests of the US. Although SBA doesn't lend money straight to the small business owners, it creates guidelines and collaborates with other lenders to provide loans to small firms.

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