A small business can be an exciting and rewarding experience, but it also requires careful planning and a firm understanding of the decisions you will need to make. There are several different business structures that you choose from when starting your business. Depending on how your liability is structured, the legal structure will have an impact. There are several different types available with their advantages.
A sole proprietorship is the simplest type of structure for a business. In case your company is owned solely by you, then there is no legal separation between you and your company. It means you are personally liable for all debts and obligations incurred by the business. While a sole proprietorship may be easy to set up and operate does come with risks. If you get it can’t pay off creditors and go after your assets like your home or car. If you’re starting with more partnerships may be the best option for you. A partnership involves two or more people sharing ownership in a company. A sole proprietorship does not provide any protection against personal liability for debts or lawsuits incurred by the business. Partnerships offer some additional flexibility in terms of management structure and tax options.
A limited liability company (LLC) offers protection against personal liability over either sole proprietorships or partnerships. LLCs are separate entities from their owners (called members), which means members’ assets are generally protected in case of lawsuits or debts incurred by the company. LLCs also offer greater flexibility in terms of management structure than other types of legal structures. Whether you want to learn here about a limited liability company from your members or an outside manager depends on your needs.
A corporation is a separate entity from its owners (called shareholders). Corporations offer protection against personal liability of any type of structure if the company is run properly and follows all required formalities. A company’s legal is also more complex to set up and operate than a standard foundation. It requires more extensive record-keeping, regular meetings of directors and shareholders, and adherence to various state laws and regulations.
Choosing the right legal structure
- Personal Liability you want maximum protection against liability, an LLC or corporation may be the best option.
- Corporations may be subject to double taxation (taxed at the corporate level and individual level) while LLCs and partnerships are taxed only at the individual level.
- Different management structures can work better for your business depending on your level of involvement in the day-to-day operations of your business.
- While sole proprietorships and partnerships are less expensive to establish than LLCs or corporations, they also provide less protection against personal liability than LLCs and corporations.
Choosing the right legal structure depends on a variety of factors unique to your situation. Consulting with a lawyer or accountant is an informed decision that meets your personal needs and those of yours. It is a thrilling experience to set up a small business, and it requires careful thought and decision-making. Business structure has a significant impact on your company’s performance, your liability, and your tax obligations.