Starting a business not only involves setting up your business, creating a business plan, and finding funding. It also requires you to consider what type of company you will have. There are many choices available to start up business owners. You can be a sole proprietorship when starting a business or choose to incorporate. While a sole proprietorship keeps you in complete control, it also put you at complete risk. You must bear the burden of any debts and expenses incurred by your business. If you’re going to be a very small company, a sole proprietorship may be the way you want to go. Then as you grow you can review your business and choose to incorporate. NO matter what you decide about the legal structure of your company when starting a business, it is smart business sense to understand your options. Here are two of the most popular legal structures and the basics of both.
Sole Proprietorship: One of the advantages of a sole proprietorship is that it is easy to set up. You just start a business and you’re good to go. You don’t have to register a sole proprietorship with the state to start a business. As soon as you set up your business as the sole owner you are considered a sole proprietorship. You still have to file taxes each year and pay any taxes on your income from your business. Many people who start a business choose this route. According to the IRS there are over 22 million sole proprietorships in the US. This is one of the best options starting out before you incorporate to be sure your business will succeed.
The Limited Liability Company (LLC): An LLC is a mixture of the corporation and a partnership. It has become a very popular choice when starting a business, and most states now recognize an LLC. An LLC’s structure is not as rigid as an S Corp and is much easier to set up and maintain. If you are considering an LLC when starting a business, get legal advice as each state has its own laws concerning this type of legal structure. LLC’s help to protect the owners (members) from complete responsibility for the business’ debt; you are only liable for the amount you invest into the company. Your personal assets are protected in case of a lawsuit, which is one of the greatest advantages of an LLC. Another advantage of an LLC is the power of the members to decide on how the income is distributed. This gives the members an advantage over an S Corp when it is time to file taxes.
These are only two of the most popular choices when starting a business. It is highly recommended that you consult a lawyer when you are thinking about how to structure your new business. How you structure your business is important. You need to consider your personal risk, and the tax advantages and disadvantages. Starting a business is exciting and can lead to a successful venture. Do your homework first so you can choose the right legal structure for your business when starting out.