If you're thinking about starting a business, the very first question we encourage you to answer is...
HOW WILL I MAKE MONEY???
And then just after that, "what is the best business structure for me"?
The type of structure you choose can significantly impact your personal liability, taxes, and the ease of running your business. Today, we want to get you started with the basics. We put together an overview of the most common business formation structures and their benefits.
Sole Proprietorship
A sole proprietorship is the simplest type of business structure. It's unincorporated, meaning there's no legal distinction between the business and its owner. As a result, the owner is personally liable for all business debts and obligations.
Benefits...
Easy and inexpensive to set up.
Complete control over the business and its decisions.
No formal reporting requirements.
Partnership
A partnership is a business structure that involves two or more owners. Each partner contributes to the business and shares profits, as well as responsibilities and liability. There are two types of partnerships: general and limited.
Benefits...
Easy and inexpensive to set up.
Pooled resources and expertise from multiple partners.
Shared responsibility and liability.
Limited Liability Company (LLC)
An LLC is a hybrid business structure that combines the best aspects of a sole proprietorship and a corporation. It offers limited liability protection to its owners, known as members, while allowing them to run the business as they see fit.
Benefits...
Limited liability protection for members.
Flexibility in management and profit distribution.
Pass-through taxation, which means the business's income is only taxed once, at the individual member level.
Corporation
A corporation is a separate legal entity from its owners, known as shareholders. It can raise capital through the sale of stock and is taxed as a separate entity. There are two types of corporations: C corporations and S corporations.
Benefits...
Limited liability protection for shareholders.
Ability to raise capital through the sale of stock.
Potential for lower taxes through deductions and credits.
Choosing the right business formation structure is an important decision that can have a significant impact on your business's success. Consider your business goals, personal liability, and tax implications when making your choice. It's also advisable to consult with a legal or financial professional to ensure you choose the right structure for your specific needs.
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