Thu 24 Jul 2008
Legal Considerations - Business Structure
Once you are ready to start your business, do you know what kind of business entity it needs to be?
Many business owners don't consider this right away - but not knowing the difference between your choices could land you in a world of legal trouble down the road.
Here's a quick look at your options:
- Sole Proprietorships and Partnerships - For most entrepreneurs, this is how their small business will start.
While all the profits will be yours, so are all the responsibilities and liabilities - because the business is tied to your personal finances.
- Limited Partnerships - In Limited Partnerships, there is one main partner who makes the decisions, and others who are investors in the company.
The main partner will be the one who is personally liable if things go wrong, while the other partners put in money to take a share of the profits.
- Limited Liability Corporation (LLC) - An LLC takes the liability away from the owners of the business. Instead, the business becomes its own legal entity in the eyes of the law.
While the owner(s) will still take care of business taxes on their personal returns, they will not be forced to take on personal liability if the business is sued.
- Corporation - Incorporating is when a business becomes completely its own entity, both legally and financially.
This type of business will pay corporate taxes; and instead of being labeled an owner, the owner will be come an employee of the company.
Depending on the type of business you plan to run, and the risks associated with it, you need to carefully choose which type of business structure you need.