So, you have a great idea for a new business, but you are not sure what business structure would be most beneficial, given your unique situation. The decision you make as to what type of business entity to create has considerable effects on how you will do business moving forward. In addition to significant tax implications, your business structure also determines matters such as how you might be held liable if your business is sued. It will likely also determine how much paperwork you can expect to have to complete to get things rolling – and keep them that way. Some of the more common types of business structures are as follows, as well as some of the main benefits (and potential drawbacks) of each entity type.
Sole proprietorships are very common and this is due, in part, to the fact that they are relatively simple to launch and operate. This type of structure is also quite popular among people who work for themselves. If you choose to launch a sole proprietorship, you will have complete control over your business operations and you may also find it benefits you come tax season, because you can apply your business earnings and expenses to your personal tax return. The downside, however, is that you also assume personal liability should the business get into financial trouble.
If your business has two or more owners, a partnership may be an option for you, but keep in mind that this type of formation generally proves a bit more complicated to establish than a sole proprietorship. Partnerships do, however, offer some tax benefits. Partnerships do not have to pay taxes on business earnings. Each partner does assume personal liability in the business’ financial dealings though.
If you are looking to establish a business that will not leave you with personal liability, a corporation may be a strong option. The owners of corporations cannot be held personally liable for any of the business’ debts or financial obligations, but the corporation itself can. The corporation, too, must pay taxes and it is important to note that this type of structure also tends to have more red tape and paperwork involved in its formation than other types.
Though these are some of today’s most commonly used business structures, this is not an exhaustive list. Another type gaining in popularity, for example, is the Limited Liability Company, which is something of a combination of a partnership and a corporation. For helping determining what type of business structure is right for you, consider contacting an attorney.