Are you starting a new business, but you’re unsure what type of entity is right for you? Are you uncertain of the various legal and tax implications of a business structure? You need a proper business guide.
There are seven different business structures to consider when you’re creating your business. Most people aren’t starting a non-profit company or a co-operative as they meet a specific need. That leaves five other structures.
It’s essential to look at your business needs before you make your decision. Here’s a business guide to help you decide.
A Business Guide to the Factors to Consider
When creating a business, there are several things to think about before choosing a business entity.
The number of investors that want part ownership of the business is one consideration. Consider how to transfer ownership in the future if one or more investors want out.
Determine who will be in control and how you will make decisions. How will the business share the profits, and who is liable for decisions and debts incurred? Evaluate the business tax implications of each entity and the impact on each investor.
Sole Proprietorship
The sole proprietorship is the easiest to create and the simplest form for a self-employed individual. The business is in the hands of one person who has complete control, full responsibility for any debt. They are also liable for risk and pay personal taxes on income.
Partnership
This form of business is good when there is a business relationship between two or more people. Each has a share in the profits, and each partner contributes money, labor, or materials.
It’s essential to have a legal agreement to determine the percentage ownership for each partner, decide on control, voting power, and how to end the partnership.
Each partner is responsible for the actions of other partners, and they’re also responsible for the debt of the partnership.
Limited Liability Partnership (LLC)
An LLC is a business entity with a basic partnership structure. An LLC limits the risk to individual partners or members. The rules are different in each state.
When you form an LLC, it protects each member from the debts of the partnership, and they aren’t responsible for the actions of other partners.
Limited Partnership
The structure is a bit different from a partnership. There is one general partner with unlimited liability, and other partners have limited liability. The general partner has complete control.
Corporation
A corporation is a legal entity that takes full liability for debts and decisions. Each owner holds stock or shares in the company, and these shares determine control. Each stock receives a percentage of profits as dividends.
A corporation is the most costly and complex structure to set up, and there are ongoing reporting costs.
Make Your Decision With Confidence
When you take the time to research the different options, it will be much easier to choose the right one for your business.
Did this business guide help you understand the ins and outs of finding the best business structure? Be sure to use our simple search feature to get the latest information. Check out our Business tab for up-to-date articles.
