Here are some important factors to consider when choosing your company`s legal structure. You should also plan to consult your CPA. This type of corporation must also have a general partner who is personally responsible for all of the corporation`s responsibilities. This structure allows a partnership to have external investors without exposing them to the company`s liabilities. You need professional legal advice to make this decision, but the first step is to learn what the different structures are, depending on your situation, long-term goals, and preferences. There are several advantages to opting for a sole proprietorship. First of all, it is inexpensive to get started, and the fees for registering a sole proprietorship are minimal. In most states, the only costs associated with running a sole proprietorship are business taxes and business license fees. As your business matures, the initial choice of a business structure, regardless of its performance in the start-up phase, may require adjustments or changes. A limited liability company (LLC) is a hybrid business structure that combines the best of both worlds, meaning it has the hallmarks of partnerships and corporations. It provides personal liability protection for business owners while reducing tax and business requirements.
Business profits and losses are passed on to the owners, and each business owner must include a share of the profits/losses in their personal tax returns. The corporation is not required to file income tax forms separate from the owner because the corporation does not exist as a separate legal entity from its owner. The owner must file Form 1040, and the form must include Schedules C and SE for self-employment tax. The S company structure is generally preferred to a standard company when most of the shareholders are employed by the company or otherwise involved in its day-to-day operations. The company distributes most of its income to its shareholders each year. Business owners may also qualify for tax deductions, such as health insurance. Unlike a limited liability company, a sole proprietorship is not required to comply with common requirements such as shareholder meetings and votes or elections of directors. On the other hand, since it is not a separate legal entity from its owners, the owners are personally liable for the debts, obligations and obligations of the company. There are many possibilities and factors that you need to consider when setting up your business structure. Many of the benefits of starting a business can be achieved in other ways for sole proprietors, such as purchasing liability insurance. And the laws on paper are often overwhelmed by the practicalities of the real world. An LLC is a mix of a business and a partnership and is quickly becoming the most popular structure for small businesses because of its flexibility.
Its cost of creation and maintenance is low, while offering most of the benefits of a business. The ownership percentages, profit and loss distributions and voting rights of each member are determined by the articles of association of LLC, not by the ownership of the shares. This type of business structure is considered the most formalized and complex form of business organization. It`s more expensive, more difficult, and requires more paperwork. This business builder provides you with the information you need to determine the best business structure for you. The sole proprietorship is one of the most common legal structures for small businesses. Many popular businesses started as sole proprietorships and eventually grew into multi-million dollar businesses. Here are a few examples: Liability: LLC members are protected from personal liability for debts and business claims, a feature known as “limited liability.” If a limited liability company owes money or faces a lawsuit, only the assets of the company itself are threatened. Creditors cannot access the personal property of LLC members except in cases of fraud or illegality.
LLC members should exercise caution so as not to “break the corporate veil,” which would expose members to personal liability. For example, LLC owners should not use a personal checking account for business purposes and should always use the LLC trade name (rather than the owner`s individual names) when working with clients. The decision to start your own business is a big business. Tax planning and preparation is essential to minimizing your small business` tax liability. Be sure to research U.S. tax laws and make sure tax laws change every year. How you structure your business from the beginning can have a lasting impact on the future and affect your profit margin. The structures discussed here apply only to for-profit businesses. If you`ve done some research and still aren`t sure which business structure is right for you, Friedman recommends consulting a business law specialist. In addition to being a sole proprietorship, the partnership is one of the most common types of business structures.