[This article was written by Hannah Jones.]
A business is articulated entrepreneurship requiring skills, strategies, finance, and deciding the type of legal structure for it. Not all the structures are considered fit for all. Your task is to understand how each structure works and then select the one that best meets your needs.
Small businesses prefer sole proprietorship or if there is more than one owner, then partnership. These structures are best for the businesses in which personal liability is not a matter of concern.
The sole proprietorship’s and partnerships are simple to run and require less finance to set up. And after some years, the proprietorship’s can switch over to C corporation or S corporation. However, you need to select and plan the right business form that is best for you, which involves a delicate balance of different considerations.
Here are some of the incorporation types, select the ones that you think are the best for you?
Sole proprietorship or partnership
If you are a one-man setup, a sole proprietorship business is best for you. It is a popular business type, simple to run and set up. You only have to register your name and get the license, yes, if you are one or two owners, then opt for partnerships. In this type, the profits, taxes and debts are equally distributed. Whether you are in manufacturing or providing services, you can successfully get into the sole proprietorship, perfect for those who want to set up a business with a family member. You and your partner will be held liable for any decisions that you make in business. Moreover, general partnership puts on stake business and the personal assets of the partners.
Limited liability Company (LLC):
LLC: It is the popular choice among the business owners. The personal assets of the owners, partners or shareholders are protected from debts till any unethical and illegal activities are proved against the business. It offers legal protection to the companies as compared to a sole proprietorship. Apart from this you also get tax benefits.
Corporation: Corporation is an entity that is separate from its owners. The owners of the corporation are shareholders. When you form a corporation, you need to elect a board of directors who can oversee the company. It has own legal rights, enter into contracts and apply for loans, borrow money, sue or be sued, hire employees and pay taxes. Corporations are the big companies like Microsoft, Apple, McDonald’s, etc.
There are several types of corporations like C-corporation, S corporations, B Corporations, close and non-profit corporations.
S-corporation: It offers limited liability, eliminates double taxation of income and continues to exist in case owner leaves or dies. Also, you need to file your tax once in a year.
C-corporation: In C-corp, you can attract investors through the sale of stocks. Also, there is no limit to the number of shareholders. It offers limited liabilities to its directors, officers, shareholders, and employees. Moreover, it continues to exist even if the owner leaves the company. You can also enjoy other tax benefits.
B-corporation: It is known as benefit corporations. These are profit entities which are structured to create a positive impact on the world.
Close corporation: It is run by few shareholders. By forming a close corp, the company gets liability protection. They are not publicly traded therefore closed to investment from the general public.
Non-profit corporation: It is a corporation which does not earn profits and runs for any social cause. They also enjoy tax exemption benefits.
Structure type also depends on many other factors the type of business you are running, the rules and regulations of the state in which you would like to set up your business, social, economic and many other miscellaneous factors.
So before deciding the type of business, look into the different pros and consequences of its s types, and the effects it would have on your business.
Hannah Jones is a blogger by profession and traveler by choice. She loves traveling, reading and is a good guitarist. She lives peacefully with her husband and a lovely daughter in South California. She has emerged as a blog writer in her later twenties. She mostly has interest in reading legal issues. She always wanted to work for the society, and through her blogs, she was able to make people aware of various legal rights they can enjoy. Therefore, she started writing about it. In her latest blog she draws the attention of the readers towards legal services available. She works for FastIncNow and shares information about business formation services.