Labeling Your Business Structure
So you want to start a new business? Good for you. This experience will be a rollercoaster that will be well worth it in the end. When starting a business you will be responsible for making quite a few decisions. One of the most important decisions is choosing your legal business structure.
What Are Your Options?
There are a few choices when deciding your business structure, each of which has benefits and drawbacks. Your choices include:
· Sole Proprietorship
· General Partnership
· Joint Venture
· Limited Partnership
· Limited liability Partnership
· Non-Profit Corporation
· Professional Corporation
So the question is which structure is right for your business? In order to decide which business structure is right for what you plan to do, you will need to understand what each option is. A majority of start-up businesses use either sole proprietorship or a partnership.
This structure is run by one individual who is not looked at as an employee. Depending on the type of business you are starting, you may or may not need licensing or permits. When a sole proprietor files taxes, they are filing personal income taxes with a Schedule C.
With a general partnership you are will be going into the business with more than just yourself. If you have the knowhow and someone else has the skills, then you two would be partners or co-owners. The risk to this is that both personal and partnership assets are liable.
This partnership will usually consist of one or more general partners and at least one limited partner. Limited partners are not the same as general partners because they are only liable for what they contribute or invest into the company. They are also exempt from management tasks for the business.
A Limited Liability Company
This structure is a mix of a corporation and a partnership but a little more complex during the setup process. The company will be able to choose whether or not they have a partnership tax procedure or a corporation tax procedure. The advantage is that there can be any amount of partners and each partner is not liable for the entity’s debt.
The most obvious factor involved when choosing your structure is whether you will be in business alone or with partners or investors. Another issue to address is how liable you want to be or what you want your tax process to be. Needless to say this is not an overnight decision and should be well thought through. The good news is that you can change the structure in the future but you may be obligated to meet certain legal or tax regulations.
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