Part 1 Commercial Ventures: The Basics
Commercial Ventures: The Basics
In the United States there are three broad categories of business models: traditional for-profits, nonprofit corporations, and non-traditional hybrid models. Within the umbrellas of traditional for-profits and non-traditional hybrid models there are multiple options from which to choose – each offering its own costs and benefits. For more information about each of these business models, click here to view the chart which endeavors to lay out the basics of each model in more detail.
Under the traditional for-profit umbrella there are four different business entities: sole proprietorship, partnership, limited liability company (LLC), and corporation.
- Sole Proprietorship and Partnership: Designed for small businesses with a limited number of employees. Neither requires formal incorporation filings with a state government.
- LLC and Corporation: Can be used for larger ventures, and therefore come with the benefit of limited liability for the members or shareholders as well as increased formalities around reporting.
In addition to the more traditional business models, there are a number of “non-traditional” for-profit models to choose from. The goal of these models is to provide business owners with an alternative to purely profit-driven models. These models are designed to allow business owners to build a social benefit into their mission. They include the worker-owned cooperative, the low-profit limited liability company (L3C), and the benefit corporation.
- Cooperative: In a worker-owned cooperative, the workers own the business. Cooperatives are run by democratic principles and are often used by individuals who want to build community wealth by keeping profits within the community that the business is located.
- L3C and Benefit Corporation: Both are variations of more traditional business models. The L3C is modeled off of the LLC while the benefit corporation is modeled off of the traditional corporation. Both models operate according to many of the same rules as their more traditional counterparts, but they both have a double bottom line: one focused on turning a profit and the other on creating a public benefit. It’s important to note that the L3C and benefit corporations are not recognized in all 50 states, so you will need to check with your local Secretary of State’s office for more information.