Understanding Business Debts

A business is simply defined as any entity or organization engaged in business activities. In business you will find that there are many different types of businesses including manufacturing, retail, service, and intellectual property. Businesses can also be for-profit or non-profitable organizations that work to meet a social cause or further a personal social agenda. Whatever the type of business, it is necessary to define and provide guidelines so that everyone involved in the business can agree on a set of business rules and standards.

Business profit is determined by the gross revenues of a publicly traded business. Profits are reported in terms of the gross revenue figure less any expenses that are included in the gross revenues. Many businesses, even large corporations, conduct businesses profitably. Some businesses, such as restaurants, purchase goods and services from other businesses and pass those costs on to the customers. Other businesses do not pass any costs on to customers but rather use that money to develop new products or services.

Corporations are organizations of people who own the assets and control the assets of the corporation. The assets of a corporation are primarily its stock. All shareholders will receive an annual dividend, which represents the proportion of the ownership in the corporation. Dividends are generally paid at the end of each fiscal year by the corporation’s shareholders to their respective accounts. Many corporations also allow dividends to be invested in a variety of securities such as stock, bonds, mutual funds, and real estate properties.

A limited liability corporation is another type of business structure. A limited liability corporation is a corporation that limits its liability to its shareholders. Unlike corporations, a limited liability company does not have the rights to bind its creditors or engage in lawsuits. Instead, if the corporation or limited liability business breaks down, its shareholders will have little protection if their corporation is sued. A limited liability corporation has less liability than most other types of corporations and is a good choice for new businesses or those who are beginning a business.

A partnership is an unincorporated joint venture in which one person owns a portion of the assets of another and that person benefits from the partnership’s profits and losses. Partnerships are most commonly established to share the cost of doing business or to protect one person’s credit against personal debts. A partnership’s debts and liabilities are limited to those that belong to the partnership and its partners. Partnerships also offer tax advantages when the partners use the corporate or LLC entity to hold their assets.

Limited liability partnerships are a unique type of business structure that limits the personal liability of the partnership. Because partners will each own a portion of the LLC, only their liability to the business debts is incurred. As with all limited partnerships, the general obligation option applies in some states, with partners paying a higher rate of interest. There are several advantages to limited partnerships including limited liability, lower costs and tax advantages.

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