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Types of Business Entities

There are two main types of business entities i.e: Profit Oriented or Commercial entities and Non Profit Oriented entities.

Profit Oriented / Commercial Entities

Profit oriented or commercial entities are those entities where the key aim of carrying out business is to earn profit for the owners of the business. Profit oriented entities are of following types:

  • Sole Proprietorship 
  • Partnership
  • Companies

Sole Proprietorship

Is the type of business is owned by a single individual? There may several employees of the business but ownership and risks and returns rest with a single owner. All assets and liabilities of the business are the assets and liabilities of the owner.

Partnership

Is the type of business that is owned by more than one person? These persons form a “Partnership Firm” through an agreement called “Partnership Agreement”. Partnership firms and agreements are governed by the Partnership Act 1932.

All partners of a firm are jointly and severally liable to liabilities of the firm. This means that in case of bankruptcy of the firm personal properties of the partners would also be utilized for payment of liabilities of the firm.

Companies

Companies are separate legal entities formed under the Companies Ordinance 1984. The main difference between companies or limited companies as they are commonly called is that companies are separate legal entities and the liability of the owners is also limited whereas characteristics are not there in case of sole proprietorship and partnership.

Non-Profit Oriented Entities

Non-profit oriented entities are those business entities / concerns where the main purpose of doing business is not to earn profits for the owners / sponsors but to provide benefit to public or to carry out a social cause. Profits of a non-profit oriented entity can only be used for the purpose for which the entity is established

  • NGO’s
  • Trusts
  • Societies
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