Home  Articles Business Issues Choosing a Business Structure
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Choosing a Business Structure |
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One of the things which must be decided before beginning your business is the type of business structure which would be the best for your particular company. Some of the options are limited liability company (LLLC), corporation, partnership, and sole proprietorship....
The type of structure which you select for your business will make a difference on subjects such as personal liability questions, regulations and fees involved in your start up and future operating costs, tax implications and payments and also the potential for issues stock shares in your business.
LIABILITY
If your business activities put you in a position where you may be at risk, such as handling money entrusted to you by other people, you will undoubtedly require some type of protection against liability. Both limited liability companies and corporations give you protection against liability personally so that your personal assets are not at risk to pay company or business debts. If you have no need to ensure protection of this sort, then a partnership or a sole proprietorship is probably the right choice for your purposes.
OWNERSHIP
The number of owners in the company or business makes a difference in the type of business structure you should choose. Corporations and limited liability companies can have one owner or several owners. A partnership will have at least two owners but more are equally common. A sole proprietorship will have one owner only.
START UP FEES AND FILING
Consider the time involved to complete forms and paperwork for the various types of business structures. You can start a sole proprietorship or a partnership without the need of filing any forms with the state or county where the business is located, although if you use an assumed business name, that will need to be registered with the state in most states. There will be fees associated with that filing.
If you have elected to structure your business as a corporation or limited liability company, you are required to submit paperwork to the state where you will be doing business. You must also pay a fee which varies from state to state, but can be $500 and more, especially if you use the services of an attorney to file the papers.
TAXES
You need to have knowledge of how each of the business structures will impact the filing of your income taxes. With limited liability companies, partnerships, and sole proprietorships, business profits and taxes are filed on the personal income tax returns. The taxes on their portion of the profits of the business must be paid, even if the owner has been unable or unwilling to pull cash out of the business.
If you choose a corporation as your preferred business structure, tax implications are more complicated. Owners don't report profits or losses from the corporation on the personal income tax filing. Instead, they file corporate income taxes. The business owner only pays personal income tax on that portion of the company profits which have been pulled out of the business.
If you will be wanting to issue stock in your company which is likely if you want the business to go public so that you can sell the stock when looking for investors you will need to structure your business as a corporation. Corporations provide you with the ability to sell stock shares and protect you from personal liability. If you don't need to issue stock or you don't plan to go that route, the you will have the personal liability protection needed by structuring as a limited liability company.
You should consult both an attorney and an accountant before you complete a decision of the type of business structure which would be best for your purposes. This decision--whatever it is, is not a permanent thing. You can change the structure of your business in the future if the needs or implications change.
Never form a partnership with a person or company which you don't know unless you have thoroughly checked into their background.
Both the accountant and the attorney can be of assistance in helping you through the filing process and the completion of needed paperwork. You can also find all of the information you will need on the internet, if required.
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