Types of business entity facts for kids

A business entity is a type of organization that sells things like products or services. Its main goal is usually to make a profit, which is money left over after paying all the costs.

Different countries have different kinds of business entities. But many countries have similar types. Here are a few examples of business entities you might find in the United Kingdom:

What is a Business Entity?

A business entity is simply the legal way a business is set up. Think of it as the official structure that a company uses to operate. This structure affects how the business makes money, how it's owned, and how it deals with its debts.

Why Do Businesses Need a Structure?

Having a clear structure is important for several reasons. It helps define who owns the business and who is responsible for its actions. It also affects how the business pays taxes and how it can grow. Choosing the right type of business entity is a big decision for anyone starting a company.

Common Types of Business Entities

There are many ways to set up a business. Each type has its own rules about ownership, responsibility, and how money is handled. Let's look at some common examples.

Private Limited Company (Ltd.)

A Private Limited Company is often called an 'Ltd.'. This type of company is divided into small parts called shares. People who buy these shares become part-owners of the business. They are called shareholders.

One important thing about an Ltd. is that shareholders have limited liability. This means if the company owes money, the shareholders only have to pay back the amount they agreed to invest. They won't lose more than that. Shares in an Ltd. cannot be sold to the general public.

Public Limited Company (PLC)

A Public Limited Company is usually called a 'PLC'. Like an Ltd., a PLC is also divided into shares. However, there's a big difference: shares in a PLC can be bought and sold by anyone. This means they can be traded on a stock market.

Just like with an Ltd., the shareholders in a PLC also have limited liability. This protects them from losing more money than they invested if the company faces financial trouble. PLCs are often larger businesses.

Limited Liability Partnership (LLP)

A Limited Liability Partnership is known as an 'LLP'. This type of business is owned by two or more people, called partners. These partners sign an agreement that explains how they will run the business. It also details how any profit (the money the business makes) will be shared among them.

All partners in an LLP have limited liability. This means their personal money is usually safe if the business runs into debt. LLPs combine some features of a partnership with the protection of a company.